THE WORLD BANK W O R L D B A N K O P E R A T I O N S E V A L U A T I O N D E P A R T M E N T Bosnia and Herzegovina Post-Conflict Reconstruction and the Transition to a Market Economy An OED Evaluation of World Bank Support OPERATIONS EVALUATION DEPARTMENT ENHANCING DEVELOPMENT EFFECTIVENESS THROUGH EXCELLENCE AND INDEPENDENCE IN EVALUATION The Operations Evaluation Department (OED) is an independent unit within the World Bank; it reports directly to the Bank's Board of Executive Directors. OED assesses what works, and what does not; how a borrower plans to run and maintain a project; and the lasting contribution of the Bank to a country's overall development. The goals of evaluation are to learn from experience, to provide an objective basis for assessing the results of the Bank's work, and to provide accountability in the achievement of its objectives. It also improves Bank work by identifying and disseminating the lessons learned from experience and by framing recommendations drawn from evaluation findings. W O R L D B A N K O P E R A T I O N S E V A L U A T I O N D E P A R T M E N T Bosnia and Herzegovina Post-Conflict Reconstruction and the Transition to a Market Economy An OED Evaluation of World Bank Support 2004 The World Bank http://www.worldbank.org/oed Washington, D.C. © 2004 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved Manufactured in the United States of America First edition September 2004 1 2 3 4 07 06 05 04 The findings, interpretations, and conclusions expressed here are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org. Cover photo by Tim Cullen, courtesy of the World Bank Photo Library. ISBN 0-8213-5978-9 e-ISBN 0-8213-5979-7 Library of Congress Cataloging-in-Publication data have been applied for. World Bank InfoShop Operations Evaluation Department E-mail: pic@worldbank.org Knowledge Programs and Evaluation Capacity Telephone: 202-458-5454 Development (OEDKE) Facsimilie: 202-522-1500 E-mail: eline@worldbank.org Telephone: 202-458-4497 Facsimilie: 202-522-3125 Printed on Recycled Paper Contents v Acknowledgments vii Foreword, Prefacio, Avant-propos xi Executive Summary, Résumen, Résumé Analytique xix Acronyms and Abbreviations 1 1 Background 1 The Break-up of Yugoslavia and Its Impact on Bosnia and Herzegovina 1 The War in Bosnia and Herzegovina 2 The Peace Agreement and the New Government Structure 2 The International Reconstruction Effort 5 2 World Bank Strategy and Assistance Program 5 Preparing for World Bank Support to Bosnia and Herzegovina 5 World Bank Strategy and Objectives 7 An Overview of IDA Lending 9 Lending in Relation to Objectives 9 Economic Policy, Economic Management, and Governance 10 Private Sector Development 12 Financial Sector Reform and Restructuring 14 Support for the Social Sectors: Education 14 Support for the Social Sectors: Health 15 Support for the Social Sectors: Social Protection and Employment 16 Infrastructure 17 Analytical and Advisory Activities 17 Aid Mobilization and Coordination 21 3 Outcomes 21 Overall Economic Performance 21 Economic Policy, Economic Management, and Governance 28 Overall Rating 28 Institutional Development Impact 29 Sustainability i i i B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y 31 4 Contributions to Outcomes 31 The Bank's Role 32 Other Donors 33 The Client 35 5 Recommendations 37 Annexes 39 A: Statistical Tables and Figures 59 B: List of People Interviewed 61 C: Guide to OED's Country Assistance Evaluation Methodology 65 D: Comments from the Government 67 E: IFC's Assistance to Bosnia and Herzegovina in FY97­03 71 F: MIGA Guarantee Operations in Bosnia and Herzegovina 73 G: Management Action Record 75 H: Chairperson's Summary: Committee on Development Effectiveness (CODE) 79 Endnotes 83 Bibliography Boxes 3 1.1 International Oversight of Peace in Bosnia and Herzegovina 6 2.1 Membership and IBRD Debt Tables 3 1.1 GDP and GDP per Capita Estimates for BiH 7 2.1 Planned vs. Actual Commitments 9 2.2 Portfolio Ratios for BiH 9 2.3 Average Annual per Capita IDA Commitments for Post-Conflict Countries 18 2.4 Contribution of IDA and Other Donors to IDA Projects 22 3.1 Post-Reconstruction Economic Trends in BiH 24 3.2 Size of Intermediation and Credit to the Private Sector, 1997­03 25 3.3 Enrollment Rates, Most Recent Estimate i v Acknowledgments T his evaluation was prepared by Stephen Peer reviewers were Poonam Gupta and Nicholas O'Brien, consultant to the Operations Eval- Krafft. Gulmira Karaguishiyeva and Maria Lourdes uation Department (OED). Laurie Effron Gallardo provided research assistance. Roziah (OED) was the Task Manager. Background pa- Baba and Betty Casely-Hayford provided admin- pers were prepared by James Harrison, Sunil istrative and editorial support. Caroline McEuen Mathrani, and Chandrashekar Pant (consultants). edited the report for publication. Director-General, Operations Evaluation: Gregory K. Ingram Director, Operations Evaluation Department: Ajay Chhibber Senior Manager, Country Evaluation and Regional Relations: R. Kyle Peters Task Manager: Laurie Effron v F O R E W O R D FOREWORD PREFACIO AVANT- PROPOS ~NOL A ENGLISH ESP FRANÇAIS This report examines World En este informe se examina la Le présent rapport porte sur Bank assistance to Bosnia and Herze- asistencia prestada por el Banco Mun- l'aide fournie par la Banque mondiale govina (BiH) during 1996­03. It ana- dial a Bosnia y Herzegovina durante el à la Bosnie-Herzégovine de 1996 à lyzes the objectives and content of the período de 1996 a 2003. Se analizan 2003. Il analyse les objectifs et le Bank's assistance program during this los objetivos y el contenido del pro- contenu du programme d'aide de la period, the outcomes in terms of eco- grama de asistencia del Banco du- Banque durant cette période, les ré- nomic and social development in BiH, rante dicho período, sus resultados, sultats en matière de développement and the contributions of the Bank and medidos en términos del desarrollo économique et social en Bosnie-Her- other development partners to devel- económico y social alcanzado por Bos- zégovine, ainsi que les contributions de opment outcomes. The report is based nia y Herzegovina, y la forma en que el la Banque et des partenaires du déve- on a review of project files, economic Banco y otros asociados en el desa- loppement aux réalisations dans le do- and sector reports, Implementation rrollo contribuyeron al logro de dichos maine du développement. Le rapport se Completion Reports (ICRs), Project Per- resultados. El informe se basa en un fonde sur l'examen des documents sui- formance Assessment Reports (PPARs), examen de los archivos sobre los pro- vants : dossiers de projet, rapports éco- and other OED evaluations (see, in par- yectos, informes económicos y secto- nomiques et sectoriels, rapports de fin ticular, OED 2000); Quality Assurance riales, informes finales de ejecución d'exécution (RFE), rapports d'évalua- Group (QAG) ratings of quality at entry (IFE), informes de evaluación ex post tion rétrospective de projet (RERP) et for BiH projects and economic and sec- de proyectos y otras evaluaciones lle- autres évaluations de l'OED (voir en tor reports; and interviews with Bank vadas a cabo por el Departamento de particulier OED 2000). Le rapport tire staff who are working or have worked Evaluación de Operaciones (DEO) également parti des évaluations, par le on the BiH program. The Country As- (véase, en particular, DEO, 2000); en la Groupe d'assurance de la qualité, de la sistance Evaluation (CAE) also incor- valoración dada por el Grupo de Ga- qualité initiale des projets, des rap- porates work from background papers rantía de Calidad (GGC) a la calidad en ports économiques et sectoriels de la in education, health, social protection, la etapa inicial de los proyectos eje- Bosnie-Herzégovine et des interviews labor markets, the financial sector, pri- cutados en Bosnia y Herzegovina y en du personnel de la Banque affecté ac- vate sector development, and infra- informes económicos y sectoriales tuellement ou dans le passé au pro- structure. The CAE team visited BiH in sobre Bosnia y Herzegovina, así como gramme de la Bosnie-Herzégovine. December 2003 for discussions with en entrevistas con funcionarios del L'évaluation de l'aide à la Bosnie-Her- BiH officials, representatives of other Banco que trabajan o hayan trabajado zégovine se fonde aussi sur des docu- development partners, the private sec- en el programa para Bosnia y Herze- ments de base concernant l'éducation, tor, academia, nongovernmental or- govina. En la evaluación de la asis- la santé, la protection sociale, les mar- ganizations (NGOs), and staff of the tencia al país también se incorporó chés du travail, le secteur financier, le World Bank field office. The field visit información contenida en documen- développement du secteur privé et les was carried out in collaboration with tos de antecedentes sobre educación, infrastructures. L'équipe d'évaluation a a PPAR mission that is preparing an salud, protección social, mercados la- séjourné en décembre 2003 en Bos- evaluation of four adjustment credits to borales, sector financiero, desarrollo nie-Herzégovine pour s'entretenir avec BiH (forthcoming). A list of people met del sector privado e infraestructura. les autorités, les représentants des is provided in Annex B. El equipo de evaluación de la asis- partenaires du développement, du sec- The report is organized as fol- tencia al país también visitó Bosnia y teur privé, des milieux universitaires, lows: Chapter 1 provides back- Herzegovina en diciembre de 2003 para des organisations non gouvernemen- ground on the situation in BiH at conversar con funcionarios de ese tales (ONG) et le personnel du bureau v i i B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y the end of the country's país, representantes de otros extérieur de la Banque mon- 1992­95 civil war, terms of asociados en el desarrollo, del diale. La mission sur le terrain the peace agreement and the ~NOL sector privado, de las univer- a été effectuée en collabora- government structure agreed A sidades y de organizaciones tion avec une mission du RERP, upon by the three main eth- no gubernamentales (ONG) y qui prépare l'évaluation de ENGLISH nic groups, and a brief ESP personal de la oficina del quatre crédits d'ajustement à la FRANÇAIS overview of the international Banco Mundial en el terreno. Bosnie-Herzégovine (à pa- reconstruction effort under- La visita sobre el terreno se raître). La liste des personnes taken to rebuild the economy and llevó a cabo en colaboración con una rencontrées figure en Annexe B. society. Chapter 2 reviews the World misión de evaluación ex post, que está Le rapport est structuré comme Bank's strategy and assistance pro- preparando una evaluación (pendiente suit : le premier chapitre présente la gram for BiH over the 1996­03 pe- de publicación) de cuatro créditos de situation de la Bosnie-Herzégovine riod. Chapter 3 analyzes the ajuste concedidos a Bosnia y Herze- à la fin de la guerre civile dont le pays outcomes achieved in BiH in gov- govina. El Anexo B contiene la lista a été le théâtre de 1992 à 1995, les ernance, economic growth, em- de las personas con las que se man- modalités de l'accord de paix et la ployment generation, development tuvieron esas reuniones. structure du gouvernement conve- of the private sector, delivery of so- El informe está estructurado de nue par les trois principaux groupes cial services and provision of effec- la manera siguiente: en el Capítulo 1 ethniques, ainsi qu'un bref aperçu tive safety nets, and the impact of se proporciona información de fondo de l'effort international de recons- World Bank programs in these areas. sobre la situación que existía en Bos- truction visant à rebâtir l'économie This chapter also includes an as- nia y Herzegovina al final de la gue- et la société. Le chapitre 2 passe en sessment of the likely sustainability rra civil de 1992-95; se describen los revue la stratégie et le programme of the World Bank­financed pro- términos del acuerdo de paz y la es- d'aide de la Banque mondiale à la gram in BiH. Chapter 4 attempts to tructura gubernamental acordados Bosnie-Herzégovine sur la période attribute responsibility for the out- por los tres principales grupos étni- 1996-2003. Le chapitre 3 analyse les comes achieved to the various par- cos y se ofrece un breve panorama de résultats obtenus par le pays en ma- ties involved--the World Bank, other las actividades internacionales lleva- tière de gouvernance, de croissance development partners, and the sev- das a cabo con el fin de reconstruir économique, de génération d'em- eral governments of BiH. The final la economía y la sociedad. En el Ca- plois, de développement du secteur chapter draws conclusions and pítulo 2 se examina la estrategia y el privé, de prestation de services so- makes recommendations for future programa de asistencia del Banco ciaux et de mise en place de méca- World Bank work in BiH and in other Mundial para Bosnia y Herzegovina nismes de protection sociale, ainsi post-conflict countries. durante el período de 1996 a 2003. En que l'incidence des programmes de Comments from the Bank's Re- el Capítulo 3 se hace un análisis de los la Banque mondiale dans ces do- gional management have been in- resultados alcanzados en materia de maines. Ce chapitre évalue égale- corporated in the report. The report gobernabilidad, crecimiento econó- ment la viabilité du programme was also sent to the BiH authorities, mico, generación de empleo, desa- financé par la Banque mondiale en whose comments are in Annex D. rrollo del sector privado, prestación Bosnie-Herzégovine. Le chapitre 4 de servicios sociales y provisión de tente d'attribuer la responsabilité redes de seguridad efectivas, así des résultats obtenus aux différents como del impacto de los programas acteurs concernés --la Banque mon- del Banco Mundial sobre estos as- diale, d'autres partenaires du déve- pectos. Este capítulo también con- loppement et les différents tiene una evaluación de la posible gouvernements de la Bosnie-Her- sostenibilidad del programa finan- zégovine. Le dernier chapitre tire ciado por el Banco Mundial en Bos- les conclusions et formule des re- nia y Herzegovina. En el Capítulo 4 se commandations concernant les fu- trata de identificar la contribución tures interventions de la Banque v i i i F O R E W O R D hecha por las diferentes par- mondiale en Bosnie-Herzé- tes interesadas ­el Banco govine et dans d'autres pays ~NOL Mundial, otros asociados en el sortant de conflit. A desarrollo y los distintos go- Les observations de biernos de Bosnia y Herze- l'équipe de direction régio- ESP govina­ a los resultados nale de la Banque ont été in- FRANÇAIS alcanzados. El último capítulo tégrées au rapport. Celui-ci a contiene conclusiones y re- également été communiqué comendaciones para la futura labor aux autorités de la Bosnie-Herzégo- del Banco Mundial en el país y en vine dont les observations figurent otros países que han salido de un à l'Annexe D. conflicto. Se incluyeron en el informe los comentarios de los directivos supe- riores de la Oficina Regional del Banco, que también se envió a las autoridades de Bosnia y Herzego- vina, cuyas observaciones figuran en el Anexo D. i x E X E C U T I V E S U M M A R Y EXECUTIVE RÉSUMEN RÉSUMÉ SUMMARY ANALYTIQUE ~NOL A ENGLISH ESP FRANÇAIS Following three years of war in Después de tres años de gue- Après trois années de guerre Bosnia and Herzegovina (BiH), during rra en Bosnia y Herzegovina, durante en Bosnie-Herzégovine, au cours de which over 10 percent of the population los cuales más del 10% de la población laquelle plus de 10 % de la population were killed or wounded, and over half resultó muerta o herida y más de la a été tuée ou blessée, et plus de la moi- of the population displaced, a peace mitad quedó desplazada, en noviembre tié déplacée, un accord de paix (l'Ac- agreement, the Dayton Accords (DA), de 1995 se negociaron acuerdos de cord de Dayton), a été négocié en was negotiated in November 1995. The paz, conocidos como los Acuerdos de novembre 1995. L'Accord reconnaissait DA acknowledged the bitter ethnic di- Dayton. En éstos se reconocieron las les profonds différends ethniques qui vides that led to war by establishing a profundas divisiones étnicas que con- ont entraîné la guerre en mettant en government structure with a weak cen- dujeron a la guerra cuando se esta- place une structure gouvernementale tral State; the ethnically based "Enti- bleció una estructura de gobierno con caractérisée par une administration ties" (the Federation of Bosnia and un Estado central débil: la autoridad centrale faible, les « Entités » fondées Herzegovina and the Republika Srp- política, militar y económica quedó en sur les ethnies (la Fédération de Bos- ska) retained political, military, and manos de las "Entidades" de base ét- nie-Herzégovine et la Republika economic authority. The DA also pro- nica (la Federación de Bosnia y Her- Srpska) conservant le pouvoir poli- vided for a strong international police zegovina y la República Srpska). Los tique, militaire et économique. L'Ac- and military presence and an interna- Acuerdos de Dayton también estable- cord de Dayton prévoyait aussi une tional overseer--the Office of the High cieron una fuerte presencia interna- solide présence policière et militaire Representative (OHR).1 Although this cional militar y policial y un supervisor internationale et un inspecteur inter- structure was a necessary political internacional, la Oficina del Alto Re- national--le Bureau du Haut Repré- compromise at the time of the DA, it has presentante (OAR)1. Aunque esta es- sentant (OHR).1 Cette structure presented difficult challenges to the tructura fue un compromiso político représentait certes un compromis po- Bank as well as other donors. necesario en la época de los Acuerdos litique nécessaire au moment de la The international community de Dayton, ha presentado retos difíci- conclusion de l'Accord de Dayton, mais moved quickly to support recon- les de vencer para el Banco y otros elle pose des défis majeurs à la Banque struction in BiH. The Bank, the donantes. et aux autres bailleurs de fonds. European Union (EU), and the Eu- La comunidad internacional apoyó La communauté internationale ropean Bank for Reconstruction and con presteza la reconstrucción en s'est empressée d'appuyer la re- Development (EBRD) estimated the Bosnia y Herzegovina. El Banco, la construction en Bosnie-Herzégovine. required total donor assistance at Unión Europea (UE) y el Banco Eu- La Banque, l'UE et la Banque euro- $5.1 billion, and approximately this ropeo de Reconstrucción y Desarro- péenne pour la reconstruction et le amount was pledged over the llo (BERD) estimaron que la développement (BERD) ont évalué 1996­99 reconstruction period. asistencia total que debían aportar à 5,1 milliards de dollars l'aide to- Funds were quickly committed and los donantes ascendía a US$5.100 mi- tale nécessaire au pays et un montant disbursed. The overall reconstruc- llones y esa fue, aproximadamente, la à peu près égal a été promis au cours tion effort was highly successful. By suma prometida durante el período de la période de reconstruction de 2000 most housing, schools, water de reconstrucción de 1996 a 1999. 1996 à 1999. Les fonds ont été rapi- supply systems, roads, telecommu- Los fondos se comprometieron y se dement engagés et décaissés. L'en- nications, and electric power sup- pagaron rápidamente. En general, las semble de l'effort de reconstruction plies had been reconstructed to near actividades realizadas para recons- a particulièrement bien réussi. En pre-war standards. The economy re- truir el país tuvieron mucho éxito. 2000, la plupart des habitations, des x i B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y covered strongly in the initial Para 2000 se habían recons- écoles, des réseaux d'adduc- post-conflict years, but it had truido, casi hasta alcanzar los tion d'eau, des routes, des té- shrunk so much by 1995 (ag- ~NOL niveles anteriores a la guerra, lécommunications et des gregate production less than A la mayoría de las viviendas y réseaux électriques avaient 20 percent of the pre-war escuelas, los sistemas de su- été reconstruits et pratique- ENGLISH level, over 50 percent of the ESP ministro de agua y energía ment ramenés à leurs niveaux FRANÇAIS population unemployed and eléctrica, las carreteras y las te- antérieurs à la guerre. L'éco- in poverty, according to lecomunicaciones. La econo- nomie avait affiché une so- rough estimates) that by 1999 the mía se recuperó vigorosamente en lide reprise les premières années gross domestic product (GDP) had los primeros años que siguieron al après la guerre, mais en 1995 elle recovered to only about 60 percent conflicto, aunque para 1995 se había s'était contractée à tel point (pro- of pre-war output. deteriorado tanto (según estimacio- duction globale inférieure à 20 % du The Bank played a leading role in nes aproximadas, la producción total niveau d'avant-guerre, plus de 50 % the reconstruction effort. Together era inferior al 20% del nivel de antes de la population au chômage et dé- with the EU, the Bank organized de la guerra y más del 50% de la po- munie, selon des estimations som- donor meetings to mobilize resources blación estaba desempleada y en la maires) qu'en 1999, le produit from some 50 donor countries and 14 miseria), que en 1999 el producto intérieur brut (PIB) n'était remonté international organizations. The Bank interno bruto (PIB) sólo se había re- qu'à quelque 60 % de la production also quickly prepared emergency re- cuperado hasta situarse en un 60% d'avant-guerre. construction projects for International del nivel anterior a la guerra. La Banque a joué un rôle de pre- Development Association (IDA) and El Banco desempeñó un papel pre- mier plan dans l'effort de recons- trust fund financing, covering infra- ponderante en la campaña de re- truction. Conjointement avec l'UE, structure, housing, schools, hospi- construcción. Conjuntamente con la elle a organisé des réunions des tals, demobilization, and war victims; UE, el Banco organizó reuniones para bailleurs des fonds pour mobiliser many of these projects were co-fi- movilizar recursos provenientes de al- des ressources auprès d'une cin- nanced by other donors.2 The Bank rededor de 50 países donantes y 14 or- quantaine de pays donateurs et de approved an exceptional level of ganizaciones internacionales. El Banco 14 organisations internationales. La IDA/trust fund resources for BiH over también elaboró rápidamente pro- Banque a également mis rapidement the 1996­03 period, committing a yectos de reconstrucción de emer- au point des projets de reconstruc- total of $983 million; on a per capita gencia financiados a través de la tion d'urgence aux fins de finance- basis, this is more than for any other Asociación Internacional de Fomento ment par l'Association internationale post-conflict country to date. Only (AIF) y fondos fiduciarios, en materia de développement (IDA) et le fonds the EU and the U.S. have surpassed de infraestructura, vivienda, escuelas, fiduciaire. Ces projets portaient sur IDA in aid disbursements to BiH. hospitales, desmovilización y asisten- l'infrastructure, le logement, les To enhance the effectiveness of its cia a las víctimas de la guerra. Muchos écoles, les hôpitaux, la démobilisa- interventions during the recon- de estos proyectos fueron financiados tion et les victimes de la guerre ; struction period, the Bank opened conjuntamente con otros donantes2. bon nombre d'entre eux ont été co- a Resident Mission in early 1996, El Banco aprobó un nivel excepcional financés par d'autres bailleurs de hired competent local professional de recursos de la AIF y de fondos fi- fonds.2 Au cours de la période 1996- staff to help supervise projects, and duciarios para Bosnia y Herzegovina 2003, la Banque a approuvé, au pro- established Project Management durante el período de 1996 a 2003 y fit de la Bosnie-Herzégovine, un Units (PMUs), which were essential comprometió un total de $983 millo- niveau sans précédent de ressources in the post-conflict environment. Al- nes; en cifras per cápita, esta suma es de l'IDA/fonds fiduciaire, engageant most all of the reconstruction proj- superior a la concedida hasta la fecha un montant total de 983 millions de ects had successful outcomes. The a otros países que han salido de un dollars. Ramené au nombre d'habi- Bank's performance in supporting conflicto. Sólo la UE y los Estados Uni- tants, ce montant dépasse ce qui a reconstruction in BiH is judged both dos han desembolsado más ayuda que été approuvé jusqu'ici pour tout timely and highly relevant and la AIF a Bosnia y Herzegovina. autre pays sortant de conflit. Seuls x i i E X E C U T I V E S U M M A R Y should serve as an example Para aumentar la eficacia l'UE et les États-Unis ont of good practice in post- de sus intervenciones durante fourni à la Bosnie-Herzégo- conflict reconstruction. ~NOL el período de reconstrucción, vine plus d'aide que l'IDA. From the beginning, the A el Banco estableció una mi- Pour améliorer l'efficacité Bank was fully aware of the sión residente a principios de de ses interventions au cours ENGLISH need to establish a base for ESP 1996, contrató personal pro- de la période de reconstruc- FRANÇAIS sustainable economic fesional local competente para tion, la Banque a ouvert une growth, employment gener- ayudar a supervisar proyectos mission résidente au début ation, and poverty alleviation. As in y creó Unidades de Administración de de 1996, recruté des cadres locaux the other transition economies, the Proyectos (UAP) que fueron esencia- compétents pour superviser les pro- central challenge was the transfor- les en el clima que existía después jets et mis en place des unités de mation from socialism to a market del conflicto. Casi todos los proyectos gestion de projet, qui étaient indis- economy. Even the earliest IDA proj- de reconstrucción tuvieron éxito. Se pensables dans le contexte de l'après- ects included elements of policy and estima que, al dar apoyo a la recons- guerre. Pratiquement tous les projets institutional reforms aimed at mov- trucción en Bosnia y Herzegovina, el de reconstruction ont été menés à ing BiH toward this goal, and these desempeño del Banco fue oportuno bonne fin. Les résultats obtenus par aspects were increasingly empha- y sumamente pertinente y constituye la Banque en matière d'appui à la re- sized after the reconstruction pe- un ejemplo de cómo contribuir a la re- construction en Bosnie-Herzégovine riod. Some progress has been made. construcción después de un conflicto. sont jugés opportuns et particuliè- For example, in governance and eco- Desde el principio, el Banco fue rement bien adaptés aux réalités et nomic management, Bank assistance plenamente consciente de la necesi- devraient servir d'exemple de bonne had some success in improving dad de establecer una base para el pratique en matière de reconstruc- budgetary management and har- crecimiento económico sostenible, tion dans les pays sortant d'un conflit. monization of taxation, but tax eva- la generación de empleo y el alivio de La Banque a pleinement pris sion and corruption remain serious la pobreza. Como sucedió en el caso conscience, dès le début, de la né- problems. In the financial sector, a de las otras economías en transición, cessité de mettre en place la base né- Central Bank was established (which el desafío principal era la transición cessaire à une croissance économique functions as a currency board), bank del socialismo a una economía de durable, à la création d'emplois et à la supervision agencies were set up, a mercado. Incluso en los primeros lutte contre la pauvreté. Tout comme new national currency was intro- proyectos de la AIF hubo elementos dans les autres économies en transi- duced, new private banks entered de política y reformas institucionales tion, le principal enjeu était le pas- the market, and there was a re- orientadas a hacer que Bosnia y Her- sage d'un système socialiste à markably successful development zegovina avanzara hacia la consecu- l'économie de marché. Même les tout of micro-credit institutions. In the so- ción de este objetivo y estos aspectos premiers projets de l'IDA compor- cial sectors, education and health se recalcaron cada vez más después taient des volets de réforme des po- services were restored, a degree of del período de reconstrucción. Se litiques et des institutions visant à pension reform was achieved, and han logrado algunos progresos. En acheminer la Bosnie-Herzégovine vers some cross-Entity cooperation has materia de gobernabilidad y gestión cet objectif, et ces volets ont été de been realized. económica, por ejemplo, con la asis- plus en plus privilégiés après la pé- In other areas, however, results tencia del Banco se logró mejorar un riode de reconstruction. Quelques have been less satisfactory, par- poco la administración del presu- progrès ont été accomplis. Par ticularly in creating a supportive puesto y la armonización tributaria, exemple, dans le domaine de la gou- environment for private sector de- aunque la evasión de impuestos y la vernance et de la gestion économique, velopment, despite concerted efforts corrupción siguen siendo problemas l'aide de la Banque a quelque peu of the Bank and many other donors. graves. En el sector financiero, se es- réussi à améliorer la gestion budgé- Bank support to privatization has not tableció un Banco Central (que fun- taire et harmoniser l'imposition, mais turned out well. The Bank initially ciona como junta monetaria), se l'évasion fiscale et la corruption conti- endorsed voucher privatization for crearon organismos de superinten- nuent de poser de graves problèmes. x i i i B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y small and medium-size en- dencia de bancos, se intro- Dans le secteur financier, une terprises, with disappointing dujo una nueva moneda na- banque centrale a été instituée results, and its support for ~NOL cional, entraron al mercado (et fonctionne comme un privatization of large-scale en- A nuevos bancos privados, y conseil monétaire), des insti- terprises has become bogged tuvo un éxito notable el desa- tutions de supervision ban- ENGLISH down. The regulatory envi- ESP rrollo de las instituciones de caire ont été mises en place, FRANÇAIS ronment still retains many of microcrédito. En los sectores une nouvelle monnaie natio- the restrictive aspects of the sociales se restauró la educa- nale a été mise en circulation, former Yugoslav system. ción y los servicios de salud, se pudo de nouvelles banques privées ont fait The overall outcome of the realizar en parte la reforma del sistema leur entrée sur le marché, et l'on a as- Bank's assistance is rated as satis- de pensiones y se logró cierta coo- sisté à un développement particuliè- factory, and the institutional de- peración entre las "Entidades". rement efficace d'institution de velopment impact is rated as No obstante, en otros ámbitos los micro-crédit. Dans les secteurs so- modest, under very difficult cir- resultados han sido menos satisfac- ciaux, les services d'éducation et de cumstances. The sustainability of torios, particularmente en cuanto a santé ont été rétablis, un certain ni- the Bank's program is judged to be la creación de un clima propicio para veau de réforme de la retraite a été réa- non-evaluable because of consid- el desarrollo del sector privado, pese lisé et une certaine coopération a été erable uncertainties in the process a los esfuerzos concertados del Banco réalisée entre Entités. of creating a single economic space y muchos otros donantes. El apoyo Dans d'autres domaines, les ré- and promoting growth and em- dado por el Banco a la privatización sultats ont cependant été moins sa- ployment generation. Although no ha tenido éxito. El Banco apoyó tisfaisants, particulièrement en ce achievements at the sectoral level inicialmente la privatización mediante qui concerne la création d'un envi- are mostly considered sustainable, cupones para empresas pequeñas y ronnement propice au développe- the sustainability of all donor sup- medianas con resultados desalenta- ment du secteur privé, en dépit de port over the past eight years de- dores, y su apoyo a la privatización de l'action concertée de la Banque et de pends largely on how the country las empresas de gran envergadura se nombreux autres bailleurs de fonds. responds to several serious chal- ha estancado. La reglamentación ofi- Le soutien apporté par la Banque à lenges: the transition to a market cial sigue conservando muchos de la privatisation n'a pas été couronné economy, declining aid flows, deal- los aspectos restrictivos del antiguo de succès. Elle a, dans un premier ing with domestic debt and trade sistema yugoslavo. temps, approuvé un programme de imbalances, and continuing the re- El resultado global de la asisten- privatisation par distribution de cou- form process leading to association cia del Banco se valora como satis- pons pour les petites et moyennes with--and eventual accession to-- factorio y el impacto sobre el entreprises et les résultats ont été the EU. desarrollo institucional se considera décevants. De même, la privatisa- In the future, the Bank should modesto, en circunstancias muy difí- tion de grandes entreprises qu'elle concentrate on governance and pub- ciles. Se considera imposible eva- a également appuyée, s'est enlisée. lic sector management issues and luar la sostenibilidad del programa Le cadre de réglementation conserve on reducing the remaining barriers del Banco, debido a las grandes in- de nombreux aspects restrictifs de to private sector development. The certidumbres que existen en el pro- l'ancien système yougoslave. Bank should rethink its approach to ceso de creación de un espacio Le résultat global de l'aide de la privatization, and give greater at- económico único y de promoción Banque est considéré satisfaisant, et tention to imposing hard budget del crecimiento y la generación de l'impact sur le développement ins- constraints on State-owned enter- empleo. Aunque la mayoría de los lo- titutionnel est jugé modeste, dans prises (SOEs) and to removing the gros a nivel sectorial se consideran un contexte particulièrement diffi- legal and institutional barriers to pri- sostenibles, la sostenibilidad de todo cile. La viabilité du programme de vatization--finalizing an acceptable el apoyo proporcionado por los do- la Banque est considérée non éva- bankruptcy law, reforming commer- nantes durante los últimos ocho años luable en raison des incertitudes cial courts, resolving the ownership depende en gran medida de cómo considérables qui pèsent sur le pro- x i v E X E C U T I V E S U M M A R Y and debt status of strategic responda el país a varios de- cessus de création d'un es- enterprises, and helping to safíos importantes: la transi- pace économique unique, strengthen the role of the pri- ~ NOL ción a la economía de de promotion de la crois- vatization agencies. A mercado, la disminución de sance et de création d'em- A solution needs to be las corrientes de ayuda, el pro- plois. Certes les réalisations ENGLISH found for PMUs. Although es- ESP blema de la deuda interna y au plan sectoriel sont essen- FRANÇAIS sential during reconstruction, los desequilibrios en el co- tiellement considérées they should now be integrated mercio exterior, así como la viables, mais la viabilité de into the government structure. How- continuación del proceso de reforma l'appui de tous les bailleurs de fonds ever, given that the differentials be- hasta que se consiga la asociación au cours des huit dernières années tween PMU compensation and con la UE y, en su debido momento, est en grande partie tributaire de la government salaries are extremely el ingreso a la misma. manière dont le pays fait face à de large, this could only be successful if En el futuro, el Banco debería con- nombreux défis majeurs : la transi- done in concert with civil service re- centrarse en cuestiones de goberna- tion vers une économie de marché, form. This is an issue that the Bank bilidad y de gestión del sector público la régression des flux d'aide, la dette should consider a priority. y en reducir las barreras restantes al intérieure et les déséquilibres com- Before BiH could join the Bank in desarrollo del sector privado. El merciaux et la poursuite du proces- 1996, a solution had to be found for Banco debería reconsiderar la forma sus de réforme devant aboutir à the stock of International Bank for en que aborda la privatización y hacer l'association avec l'UE et, en fin de Reconstruction and Development más hincapié en la imposición de li- compte, à l'entrée dans celle-ci. (IBRD, generally referred to as the mitaciones presupuestarias a las em- À l'avenir, la Banque devrait pri- World Bank) debt the country had presas estatales y la eliminación de las vilégier les questions de gouvernance assumed as its share of the debts of barreras jurídicas e institucionales a et de gestion du secteur public et the former Socialist Federal Repub- la privatización mediante una ley s'attacher à réduire les obstacles aux- lic of Yugoslavia (SFRY); over 80 per- aceptable en materia de quiebra, la re- quels continue de se heurter le dé- cent of this amount was in arrears by forma de los tribunales mercantiles, veloppement du secteur privé. Elle the end of the war. The Bank agreed la resolución de los problemas rela- devrait revoir ses idées sur la priva- to restructure this debt as new IBRD tivos a la propiedad y la deuda de las tisation et insister davantage sur loans and assumed that, following empresas estratégicas y el suministro l'adoption d'une discipline budgé- economic recovery, BiH would be de ayuda para fortalecer el papel de taire rigoureuse par les entreprises creditworthy for further IBRD bor- los organismos encargados de la pri- publiques. Elle devrait aussi accorder rowing. Thus, the need for excep- vatización. une attention accrue à la suppression tional IDA commitments would be Se debe encontrar una solución a des obstacles juridiques et institu- only temporary. BiH has been serv- las UAP. Aunque fueron esenciales tionnels à la privatisation, en contri- icing this restructured IBRD debt durante la reconstrucción, se debe- buant à mettre au point une loi but has not yet been declared cred- rían integrar ahora en la estructura acceptable sur les faillites, réformer itworthy for new IBRD loans. Be- del gobierno. No obstante, dada la les tribunaux de commerce, régler le cause of significant debt relief from enorme diferencia entre las remu- problème de la propriété et de la other creditors, however, the IBRD neraciones que conceden las UAP y dette des entreprises stratégiques et debt plus the rapid build-up in IDA los sueldos que paga el gobierno, à renforcer le rôle des organismes de credits has resulted in the Bank esto sólo se podría lograr conjunta- privatisation. Group holding close to 50 percent mente con la reforma de la adminis- Il faudrait trouver une solution of BiH's total external debt. Fur- tración pública. Es un tema al que el au problème des unités de gestion thermore, once the IDA commit- Banco debería dar prioridad. de projet. Bien qu'elles aient joué un ment level is reduced to the BiH Antes de que Bosnia y Herzego- rôle essentiel pendant la recons- "norm" of $30­35 million annually, vina pudiera ingresar en el Banco, truction, elles devraient désormais beginning in FY05, BiH's IBRD and en 1996, fue preciso encontrar una être intégrées dans la structure gou- IDA debt service payments could solución al saldo de su deuda con el vernementale. Toutefois, étant x v B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y soon exceed IDA disburse- Banco Internacional de Re- donné l'écart considérable ments. Even if BiH were to be construcción y Fomento qui existe entre la rémuné- declared creditworthy for ~NOL (BIRF, conocido general- ration offerte par ces unités new IBRD loans, the already A mente como Banco Mundial, et les salaires de l'État, cette high Bank Group exposure de la que el país se había intégration ne pourrait réus- ENGLISH could limit lending and make ESP hecho cargo como su parte sir que si elle est menée de FRANÇAIS it difficult to avoid negative de las deudas de la antigua concert avec la réforme de net transfers. República Federativa Socia- la fonction publique. C'est In spite of the country's limited lista de Yugoslavia; más del 80% de une question à laquelle la Banque achievements in transition and the esta suma estaba en mora al final de devrait s'intéresser en priorité. uncertain future noted above, la guerra. El Banco estuvo de acuerdo Avant que la Bosnie-Herzégovine progress may still be possible in areas en reestructurar esta deuda en forma ne puisse devenir membre de la where past results have been disap- de nuevos préstamos del BIRF y dio Banque en 1996, il avait fallu trouver pointing. The governments of BiH, por sentado que, después de la re- une solution au problème de l'en- under the leadership of the State, cuperación económica, Bosnia y Her- cours de la dette qu'elle avait contrac- have invested considerable efforts zegovina tendría la capacidad de pago tée à la Banque internationale pour in the Poverty Reduction Strategy necesaria para contraer nuevos prés- la reconstruction et le développe- Paper (PRSP) process over the past tamos con el BIRF. Por ello, la nece- ment (BIRD, généralement appelée two years, including wide consulta- sidad de que la AIF comprometiera Banque mondiale) au titre de sa part tions with civil society and donors, sumas excepcionales no sería más des dettes de l'ancienne République and have incorporated the PRSP into que temporal. Bosnia y Herzegovina fédérative socialiste de Yougoslavie ; the country's economic and social ha estado efectuando pagos por ser- plus de 80 % de ce montant était en development strategy. In addition, vicio de esta deuda reestructurada arriéré de remboursement à la fin de the prospect of entering into a Sta- del BIRF pero aún no se le ha decla- la guerre. La Banque avait décidé de bilization and Association Pact with rado solvente para obtener nuevos restructurer cette dette sous forme the EU, and possible future EU mem- préstamos del BIRF. Sin embargo, de nouveaux prêts de la BIRD, en bership, provides strong incentives debido al importante alivio de la supposant qu'après le redressement for implementing reforms that have deuda concedido por otros acree- économique, la Bosnie-Herzégovine stalled in the past. The Bank should dores, la deuda del BIRF, sumada a la serait solvable pour pouvoir em- leverage its more limited assistance rápida acumulación de los créditos de prunter de nouveau à la BIRD. La né- through support for the EU associa- la AIF, han hecho que el Grupo del cessité d'engagements exceptionnels tion/accession process. Also, the fu- Banco sea el tenedor de cerca del de l'IDA ne devait donc avoir qu'un ture Bank strategy should be 50% de la deuda externa total de Bos- caractère provisoire. La Bosnie-Her- anchored in the PRSP in order to nia y Herzegovina. Además, una vez zégovine assure le service de cette support greater government own- que el nivel de los compromisos de dette de la BIRD restructurée, mais ership of the reform process. la AIF se ajuste a la "norma" de Bos- n'a pas encore été déclarée solvable nia y Herzegovina de US$30 millo- pour pouvoir bénéficier de nouveaux nes-US$35 millones anuales a partir prêts de la BIRD. Toutefois, suite à l'al- del ejercicio de 2005, dentro de poco légement substantiel de la dette los pagos de servicio de la deuda de d'autres créanciers, le Groupe de la Bosnia y Herzegovina al BIRF y a la Banque détient désormais près de AIF podrían ser superiores a los de- 50 % de la dette totale de la Bosnie- sembolsos de la AIF. Aunque se de- Herzégovine, du fait des créances de clarase a Bosnia y Herzegovina apta la BIRD et de l'accroissement rapide para contraer nuevos préstamos del des crédits de l'IDA. En outre, lorsque BIRF, como el riesgo del Grupo del le niveau d'engagement de l'IDA sera Banco ya es elevado, la posibilidad de réduit à la norme de la Bosnie-Her- otorgar préstamos podría ser limi- zégovine de 30 à 35 millions de dol- x v i E X E C U T I V E S U M M A R Y tada y tal vez sea difícil evitar lars par an à partir de l'exer- las transferencias netas nega- cice 05, ses paiements du ser- ~NOL tivas. vice de la dette de la BIRD et A A pesar de que el país no de l'IDA pourraient très vite ha logrado más que una tran- dépasser les décaissements ESP sición limitada y el futuro que de l'IDA. Même si la Bosnie- FRANÇAIS se describe más arriba aún es Herzégovine devait être dé- incierto, todavía se podría clarée solvable pour de progresar en aspectos en los que los nouveaux prêts de la BIRD, les en- resultados fueron decepcionantes en gagements déjà élevés du Groupe el pasado. En los dos últimos años los de la Banque pourraient limiter les gobiernos de Bosnia y Herzegovina, prêts et le pays pourrait avoir du mal bajo la dirección del Estado, han de- à éviter les transferts nets négatifs. dicado considerables esfuerzos al En dépit du succès limité en ma- proceso de los documentos de es- tière de transition et de l'avenir in- trategia de lucha contra la pobreza certain évoqués plus haut, il est (DELP), que incluyen consultas am- encore possible d'enregistrer des plias con la sociedad civil y los do- progrès dans des domaines où les ré- nantes, y han incorporado los DELP sultats passés ont été décevants. Sous en la estrategia económica y de de- la direction de l'État, les pouvoirs sarrollo social del país. Además, las publics ont consacré, au cours des perspectivas de concluir un pacto de deux dernières années, des efforts estabilización y asociación con la UE, considérables au processus d'élabo- así como el posible ingreso del país ration du Document de stratégie de a la UE, constituyen incentivos po- lutte contre la pauvreté (DSLP), no- derosos para la ejecución de reformas tamment en organisant de vastes que se habían estancado en el pa- consultations avec la société civile sado. El Banco debería potenciar su et les bailleurs de fonds. Ils ont aussi asistencia, ahora más limitada, dando intégré le DSLP dans la stratégie na- apoyo el proceso de asociación y ad- tionale de développement écono- hesión a la UE. Convendría, además, mique et social. En outre, les que el Banco anclara su futura estra- perspectives d'entrer dans le Pacte tegia en los DELP y promoviera una de stabilisation et d'association avec mayor identificación del gobierno l'UE et l'éventuelle entrée dans con el proceso de reforma. l'Union constituent de solides inci- tations à la mise en oeuvre de ré- formes qui n'ont pas abouti dans le passé. La Banque doit mettre à pro- fit son aide plus limitée en appuyant le processus d'association/accession. De même, elle doit axer sa stratégie future sur le DSLP, afin de permettre au gouvernement de maîtriser da- vantage le processus de réforme. Gregory K. Ingram Director-General, Operations Evaluation x v i i ACRONYMS AND ABBREVIATIONS AAA Analytical and advisory activities BAC Business Environment Adjustment Credit BHP Basic Health Project BiH Bosnia and Herzegovina CAE Country Assistance Evaluation CAS Country Assistance Strategy CEEC Central and Eastern European Countries CG Consultative Group CIDA Canada International Development Agency DA Dayton Accords DFID Department for International Development (U.K.) EBPAC Enterprise and Bank Privatization Credit EBRD European Bank for Reconstruction and Development EDP Education Development Project EDRP Emergency Demobilization and Reintegration Project EHSP Emergency Hospital Services Project EMIS Education Management Information System ERP Education Reconstruction Project ERP Emergency Recovery Project ESW Economic and sector work EU European Union FBH Federation of Bosnia and Herzegovina FIAS Foreign Investment Advisory Service FIHF Federal Health Insurance Fund FM Family medicine GDP Gross domestic product IBRD International Bank for Reconstruction and Development (World Bank) ICR Implementation Completion Report IDA International Development Agency IFC International Finance Corporation IGA Investment Guarantee Agency ILO International Labour Organization IMF International Monetary Fund IMR Infant mortality rate KfW Kreditanstalt für Wiederaufbau LIP Local Initiatives Project (micro-finance) LSMS Living Standards Measurement Survey MCOs Micro-credit organizations MIGA Multilateral Investment Guarantee Agency NATO North Atlantic Treaty Organization NGOs Nongovernmental organizations ODA Official development assistance OHR Office of the High Representative PA Poverty Assessment PAD Project Appraisal Document PEIR Public Expenditure and Institutional Review PELRP Pilot Emergency Labor Redeployment Project PFSAC Public Finance Structural Adjustment Credit PIC Peace Implementation Council PMU Project Management Units PPAR Project Performance Assessment Report PRSP Poverty Reduction Strategy Paper PSD Private sector development x i x B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y PTAC Privatization Technical Assistance Project QAG Quality Assurance Group RS Republika Srpska SAA Standards and Assessment Agency SAC Structural Adjustment Credit SEED Southeast Europe Enterprise Development SFOR Stabilization Force SFRY Socialist Federal Republic of Yugoslavia SITAP Social Insurance Technical Assistance Project SMEs Small and medium-size enterprises SOEs State-owned enterprises SOSAC Social Sector Adjustment Credit SOTAC Social Sector Technical Assistance Credit TA Technical assistance TAC Transition Assistance Credit TATF Technical Assistance Trust Funds (IFC) TFBH Trust Fund for Bosnia and Herzegovina UNDP United Nations Development Program UNHCR United Nations High Commissioner for Refugees USAID U.S. Agency for International Development WBTF World Bank trust fund WVRP War Victims Rehabilitation Project x x 1 Background The Break-up of Yugoslavia and Its Impact on Bosnia and Herzegovina Bosnia and Herzegovina (BiH) was one of the poorest and the most ethnically diverse of the republics of the former Socialist Federal Republic of Yugoslavia (SFRY).1 Following President Tito's death in 1980, the SFRY experienced pro- gressive deterioration in both economic and political stability, finally break- ing apart in 1991, when the republics of Slovenia and Croatia declared independence. The ensuing war in Croatia between Croats and The War in Bosnia and Herzegovina indigenous Serbs spilled over into Bosnian The war in BiH lasted for three and one-half territory, contributing to political and security years, until the end of 1995. While completely destabilization. In BiH, elections in November accurate information on the human and 1990 resulted in a Parliament sharply divided material costs of the war is impossible to among the three leading ethnic parties, compile, there is general agreement that the especially over the question of independence. human suffering and physical devastation were A referendum on independence, held on on a scale not seen in Europe since World War March 1, 1992, was boycotted by the Bosnian II. An estimated 10 percent of the population Serbs, resulting in a turnout of slightly less than were under arms at the end of the war. As many two-thirds of voters. Nevertheless, 99 percent as 250,000 were killed, 200,000­400,000 of those voting favored independence, which wounded, and over 2 million either fled the was immediately announced, followed by country or were internally displaced. As an admission to the United Nations and interna- indicator of the war's devastating impact on tional recognition from the European Union health, Bosnia's Infant The devastation and (EU) and the United States. The Bosnian Serb Mortality Rate (IMR) population refused to accept these actions. In rose from 7.4 per human suffering of the April 1992, local Serb militias, supported by thousand live births in war were on a scale not elements of the SFRY national army, began a 1991 to 14.0 by 1995. seen in Europe since war that rapidly spread to involve all three The war caused wide- ethnic groups. spread physical damage. World War II. 1 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y Over two-thirds of homes were damaged, with the funds to service external debt--to pay for one-fifth totally destroyed. An estimated 30­40 diplomatic missions abroad, and to cover percent of hospitals were destroyed and 30 administrative expenses. The RS government is percent of health care professionals were lost to highly centralized, but the FBH is divided into death or emigration. At the end of 1995, up to 10 cantons, which are organized principally on 70 percent of school buildings had been ethnic lines. The canton governments have destroyed, damaged, or requisitioned for other prime ministers and cabinets. They retain uses, and large numbers of teaching staff had control over most of the revenues raised within been lost. their territories and are responsible for, among By the end of the war, industrial output had other functions, education and health services, fallen to an estimated 5 percent of the 1990 including higher education. Below the Entity level, with 45 percent of the industrial plant and canton levels there are further subdivisions destroyed; electricity and coal production were into municipalities and towns. at 10 percent of pre-war levels; and the In summary, the political scene is character- livestock herd had shrunk to 30 percent of the ized by multiple layers of government, short pre-war numbers. By 1994 the gross domestic terms of office (elections were held every two product (GDP) and GDP per capita had years until 2002), a large number of political plummeted to less than 20 percent of the pre- parties (16 in FBH and 15 in RS parliaments), war level, significantly lower in relation to the and frequent reluctance or refusal of the politi- 1989­91 base than in any other country in cal leadership to cooperate on what should Eastern Europe or the Former Soviet Union. At have been issues of common interest. These war's end, unemployment and poverty were factors have adversely affected the ability of the widespread. Bank and other donors to contribute effectively to economic and social progress in BiH over The Peace Agreement and the New the entire post-conflict period. Government Structure Peace was achieved at the end of 1995 through The International Reconstruction Effort determined efforts of the United States and the Following the signing of the Dayton Accords, European Union. The Dayton Accords (DA),2 the Bank, the EU, U.N. agencies, other multilat- which were agreed on November 25, 1995, and eral and bilateral aid agencies, nongovernmen- formally signed in Paris on December 14, 1995, tal organizations (NGOs), and private had to recognize the extreme distrust and foundations responded quickly to the critical bitterness fostered by the violent conflict. The reconstruction needs of BiH. Many U.N. Dayton Accords established a constitution for agencies and NGOs had been active in BiH BiH with multiple levels of government, reflect- throughout the war, providing food aid and ing the wishes of the three main ethnic groups other humanitarian relief to refugees and other to retain as much control as possible over their war victims, and had prepared assessments of own affairs. An Office of the High Representa- reconstruction requirements and costs. Based tive (OHR) was established, with extraordinary on these assessments, the Bank and the EU powers (see box 1.1). The government of the presented an estimate of $5.1 billion for the State of BiH was given only minimal powers.3 donor assistance required for reconstruction.7 Most authority was vested in the two Entities-- A first donor group meeting was held in the Bosniak/Croat Federation of Bosnia and Brussels in late December 1995, followed by Herzegovina (FBH) and the Bosnian Serb four more meetings during 1996­99. These Republika Srpska (RS).4 These Entities retain meetings generated pledges of almost $5 authority over separate armies and police billion and disbursements of $3.7 billion during forces,5 and over virtually all fiscal revenues, 1996­99 from 48 donor countries and 14 banking supervision, and provision of social international organizations (Annex A, table A3), services.6 The State depends on the Entities for a remarkable response that supported substan- 2 B A C K G R O U N D I n t e r n a t i o n a l O v e r s i g h t o f P e a c e i n B o s n i a B o x 1 . 1 a n d H e r z e g o v i n a A Peace Implementation Council (PIC), comprising the 55 coun- and education reforms, judicial reforms, regulation of the private tries and international organizations that participated in the sector, and banking reforms. While the initial focus of the OHR Dayton Accords, was established to oversee the peace agree- was primarily on political and humanitarian concerns, in recent ment; it still meets several times a year. The PIC established the years it has expanded to include economic reforms. Office of the High Representative (OHR), resident in Sarajevo since The PIC has also enforced its peace-keeping role by sta- January 1996, which is charged with monitoring and overseeing tioning foreign police and military units in BiH. A U.N. interna- the implementation of the civil aspects of the Dayton Accords. tional police force introduced in 1996 was replaced by a The OHR has been accorded extraordinary governing powers by 500-person EU police mission in 2002. A military force of 60,000 the PIC, including the authority to impose laws and regulations troops, drawn primarily from NATO (North Atlantic Treaty Or- and dismiss or arrest public officials who have acted illegally ganization) nations, but including representatives from other or have failed to carry out their duties. The OHR has been involved countries, was established in early 1996. This Stabilization in the entire spectrum of economic and political activity: for ex- Force (SFOR) has been gradually reduced in size, to 16,000 in 2003, ample, civil institutions, elections, refugee returns, labor laws, and will be replaced in 2004 by a smaller force drawn from EU government compensation, pensions, payments bureaus, health countries. tial rehabilitation of housing, infrastructure, an estimated 60 percent The initial response of the and social services. By 2000, roads, power of the pre-war level.8 economy to the supply, telecommunications, water supplies, While the extreme reconstruction effort was and schools were reconstructed to near pre- poverty that affected the war standards. majority of the popula- strongly positive, but by The initial response of the BiH economy to tion at the end of the 1999 GDP has recovered the reconstruction effort was strongly positive, war had been signifi- only to an estimated 60 as reflected in the estimates of recovery in GDP cantly reduced, the percent of the pre-war and GDP per capita in the early post-war years poverty incidence in BiH (table 1.1). However, these high growth rates remained higher than in level. were from a very low level; by 1999 aggregate neighboring countries.9 GDP and GDP per capita had recovered only to Unemployment has also remained high. T a b l e 1 . 1 G D P a n d G D P p e r C a p i t a E s t i m a t e s f o r B i H 1995 1996 1997 1998 1999 2000 2001 2002 2003a Real GDP growth rate 32.4 61.9 30.0 15.8 9.6 5.5 4.4 5.5 3.5 Real GDP as percentage of 1990 GDP .22 .36 .47 .55 .60 .64 .66 .70 .72 GDP per capita in constant 1995 $ 546 981 1,298 1,445 1,551 1,595 1,632 1,671 a. Projected. Sources: World Bank and IMF databases. 3 2 World Bank Strategy and Assistance Program Preparing for World Bank Support to Bosnia and Herzegovina The rapid response of the Bank, following the end of hostilities, was possible in part because, beginning in late 1994, Bank staff met frequently with BiH of- ficials outside the country. After October 1995, Bank staff were able to work with the government and agencies based in the country to develop estimates of reconstruction needs and to prepare specific reconstruction projects.1 In addition, the Bank had observer status at the November 1995 Dayton Accords meetings. In early 1996, the Bank established the $150 tion across all sectors of the economy. Other million Trust Fund for Bosnia and Herzegovina strategic objectives were to establish and (TFBH) from World Bank profits so that loans sustain a viable macroeconomic framework and and grants for emergency projects could be to support BiH's transition from a socialist to a made before BiH became a member of the market economy. Additional objectives, implicit Bank2 and, despite lingering concerns over from the beginning, but more explicit starting personal safety in the immediate post-conflict in 2000, were to strengthen governance and period, opened a Resident Mission in Sarajevo establish affordable and equitable social in January 1996 to oversee the rapidly growing services. Underlying these primary objectives portfolio from the field. were such essential building blocks as sound BiH was admitted to membership in the fiscal and monetary policies; reforms of the tax Bank on March 12, 1996, effective from system; privatization of state-owned enterprises February 25, 1993. Membership hinged on (SOEs), including banks; deregulation of an resolving the issue of outstanding International over-regulated economy; and institutional and Bank for Reconstruction and Development policy reforms in government administration, (IBRD) debt (see box 2.1). in the judicial system, and in delivery of social services, including health, education, and social World Bank Strategy and Objectives welfare benefits. The first priority of the Bank's assistance from Transition to a market economy was endorsed 1996 through 1999 was to support reconstruc- by the political leaders of BiH, but it is question- 5 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y B o x 2 . 1 M e m b e r s h i p a n d I B R D D e b t In February 1993 the Bank terminated the membership of the SFRY sumptions were soon modified. By 1997 Bank management was and divided its capital subscriptions and IBRD debt among the projecting that BiH creditworthiness for IBRD borrowing was five successor republics. As one of the conditions of member- unlikely before 2000. Then, in July 1998, the Bank acknowl- ship, each republic was required to assume and clear out- edged that BiH would continue to be an IDA borrower through standing arrears on its share of the allocated IBRD debt (there FY02. In 2000, Bank management suggested that creditworthi- was no IDA or International Finance Corporation debt). Having ness might be achieved in FY03; but by 2002 the Bank was mak- paid no debt service during the war, BiH's IBRD debt had risen ing no explicit reference to future IBRD borrowing. It is clear that to $620.6 million at the end of 1995, of which over 80 percent rep- the Bank was over-optimistic about the pace of sustained eco- resented arrears on principal and interest (the total external debt nomic progress in BiH and the prospects for new IBRD loans. of BiH at the end of 1995 was estimated to be approximately $3.5 BiH has been servicing its IBRD debt (interest only during billion, with $2 billion in arrears). The Bank agreed to an ex- 1996­2000 and interest plus amortization since 2001), although at ceptional refinancing of the entire IBRD debt, including princi- times with some difficulty. However, for the future, the issue of pal not yet due, in the form of three new IBRD loans on relatively creditworthiness is not the major concern facing the Bank in BiH; concessional terms (25-year maturity as opposed to 20 years on rather, the issue is exposure. Thanks to generous debt relief the earlier borrowings). The Bank anticipated that this IBRD debt from other creditors, particularly the London and Paris Clubs, BiH's might be reduced by some $60 million through contributions external debt-to-GDP ratio has been reduced to below 50 percent, from donors on BiH's behalf. But only $25 million was received, and debt service-to-exports to below 10 percent. With the rapid which reduced the total outstanding debt to $595 million. pace of IDA disbursements over the past eight years, and IBRD The Bank projected that BiH's reliance on IDA resources debt, the Bank Group now accounts for almost 50 percent of would be temporary, and that BiH would recover to well above BiH's external debt. If IDA commitments are reduced to the the IDA-eligibility ceiling and to restored creditworthiness for "norm" level in FY05 (see below), BiH's debt service payments IBRD borrowing as early as 1998.a Accordingly, the Bank pro- to the Bank Group will eventually exceed inflows from existing jected that new IBRD lending, starting in FY98, could increase and new IDA credits. Even if BiH were found creditworthy for new to almost $200 million per year by 2004. On the basis of these pro- IBRD lending, and the Bank wished to avoid a situation of neg- jections, and with principal repayments on the restructured ative net transfers to the country, it is not clear that additional IBRD debt starting in 2001, the Bank would sustain a positive, IBRD lending would be prudent given the already high Bank but rapidly diminishing, net transfer to BiH. However, these as- Group exposure (see Annex A, tables A9a and A9b). a. Given this expectation, management proposed that BIH be treated as a blend country, with IDA maturities of only 25 years. These were less con- cessional terms than for other blend countries (35 years). able whether they fully accepted the case for process in BiH, and the Bank's efforts to support transformation or were fully committed to the transition, had to confront the complex govern- process--to managing its costs and benefits, and ment structure and the unique characteristics of to confronting the entrenched vested interests the SFRY system--social ownership and worker benefiting from the status quo. Also, as a result of self-management. the war, BiH was more than five years behind The Bank's strategy and objectives for BiH other transition countries in starting the transfor- were highly relevant for the country situation and mation process. While this late start could have were closely integrated with the approaches of provided opportunities to observe and learn other donors. But the Bank and the donor from the experiences of others, BiH officials had community had to work with the complex been somewhat insulated from this experience, government structure created by the Dayton given their preoccupation with war and post-war Accords, which has meant dealing primarily with reconstruction. In addition, the transition the Entity governments rather than the State. In 6 W O R L D B A N K S T R AT E G Y A N D A S S I S TA N C E P R O G R A M working within this structure, the Bank has had to BiH of $300 million for Transition to a market to accept many second-best outcomes from an FY00­02, approximately economy was endorsed by economic or social standpoint. Furthermore, three times the norm, no the political leaders of while the Bank has made strong efforts to build longer justified for BiH, but it is questionable government commitment and ownership of the reconstruction, but by reform program, with some success, it must be the need to continue whether they fully acknowledged that the objectives and strategies Bank leadership on accepted the case for described above were essentially developed by policy reform. In 2002, transformation or were the Bank and were not linked to formal the Bank allocated IDA statements of country or government objectives. support of SDR 128 fully committed to the This is not surprising, given that the newly million for FY03­05, process. formed and frequently changing governments of above the norm of SDR BiH lacked a consensus on national objectives. 75 million. However, management affirmed that BiH's IDA allocation would be reduced to the An Overview of IDA Lending norm of SDR 25 million yearly in FY05. The As of December 31, 2003, the Bank had commit- relationship between planned commitment ted $983.1 million in IDA and TFBH resources authority and actual commitments is presented to BiH for 47 projects. Of this total, $696.4 in table 2.1, which shows that the Bank million was committed for 30 projects during exceeded the IDA authorization during the the reconstruction period (FY96­99) and reconstruction period, but that commitments $286.7 million in the post-reconstruction have begun to lag behind plans in the post- period (FY00­03). In addition to establishing reconstruction period. the $150 million TFBH, the Bank made an In responding rapidly to the urgent exceptional IDA allocation to BiH of $400 reconstruction needs of BiH, the Bank approved million for the period FY96­99. With a per- seven emergency projects for $160 million ($150 capita income of around $500 in 1995, BiH was million of TFBH and $10 million of IDA funding) clearly IDA-eligible,3 but the total of $550 during FY96, and nine more projects totaling million of IDA and TFBH resources represented $196.4 million during the first half of FY97 (for a a fourfold increase over what would have been description of each of these operations see OED a "normal" IDA allocation for a country with 2000). Some 73 percent of this total was BiH's population. Bank management justified disbursed by the end of FY97. A conscious this exceptional IDA allocation as essential for decision was made to fund separate projects in the Bank to play a central role in BiH's each sector rather than a single omnibus reconstruction. In 1997 Bank management reconstruction project, and to seek donor co- added a further $120 million in IDA resources financing for each of these operations. The Bank for FY98­99. In 2000, Bank management also decided to submit projects for Board proposed continuing exceptional IDA support approval whether fully funded or not, which T a b l e 2 . 1 P l a n n e d v s . A c t u a l C o m m i t m e n t s FY96­99 FY00­02 FY03­04a Planned Actual Planned Actual Planned Actual FY96­99 strategy 670.0 696.4 FY00­02 strategy 300.0 264.0 FY03­05 strategy 102.0 22.7 a. Planned and actual commitments only through 12/31/03. 7 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y sometimes led to underfunded activities, but In addition, since FY96 the Bank has significantly reduced the Bank's response time. approved six adjustment operations for $339 These emergency projects involved rehabilita- million, or 34 percent of total lending. Includ- tion of industries, infrastructure, housing, ing the above-mentioned TAC, there were four schools, and hospitals; establishment of micro- adjustment operations during the FY96­99 credit institutions; landmine clearance; and reconstruction phase, for a total of $275 support for war victims and demobilized million, or 39 percent of lending. This is a combatants. In addition, the FY97 Transition significantly higher share of adjustment lending Assistance Credit (TAC) of $90 million was than the 23 percent originally planned and also intended to provide foreign exchange for higher than in most other post-conflict budget support and debt service. countries. Given the mixed results of these An important element of Bank strategy in the adjustment loans (discussed in the following reconstruction period was the establishment of sections), it is questionable whether this was Project Management Units (PMUs) for every the best use of IDA funds for reconstruction. project to offset weaknesses in government Overall performance of the Bank's portfolio structures and staffing. The Bank was successful has been satisfactory. As of December 31, 2003, in hiring well-qualified local staff for these PMUs 19 projects were under implementation and 28 by offering compensation well above that paid projects had been closed. None of the projects to civil servants. The competence of these currently under implementation is considered PMUs, along with close supervision of all to be a problem project or project at risk. Trends projects from the field, enabled the Bank to on problem projects, projects at risk, and carry out its fiduciary responsibility effectively. disbursement ratios are shown in table 2.2. The While the Bank attempted to persuade other very high disbursement ratios in the early years donors providing parallel funding for IDA reflect the rapid rate of disbursement on projects to operate through the same PMU, this reconstruction projects, plus the pace of new effort was not always successful. Some projects project approvals during each year. The have been managed by two or more PMUs, and disbursement rate has remained satisfactory in a number of issues have arisen over time regard- the post-reconstruction period except for a one- ing PMUs (see Chapter 5). time dip in FY02. Of the closed projects, 26 have The initial group of reconstruction projects was been rated by OED, and despite one project followed by a second phase of emergency rating of highly unsatisfactory (Emergency operations, including a comprehensive reconstruc- Landmines Clearance Project), BiH ratings tion project for the RS, where lending had been compare favorably with Eastern Europe and restricted until after the Central Asia Region (ECA) and Bankwide Consistent with the 1996 elections. The sec- averages (Annex A, table A5a). However, four Bank's objectives for toral distribution of IDA credits are the subjects of ongoing Project reconstruction, lending during FY96­03 is Performance Assessment Reports (PPARs), and shown in Annex A, table some of the ratings may change. transformation, and A4b. Consistent with the IDA lending to BiH has been substantial, by improvements in social Bank's objectives for any measure. In BiH, the Bank and the donor service delivery, the share reconstruction, transfor- community expected the Bank to take a leading of Bank lending has been mation, and improve- role in reconstruction. In the four years follow- ments in social service ing the conflict, BiH received one of the highest relatively high in finance delivery, the share of Bank per capita allocations of total donor assistance and private sector lending has been relatively to any post-conflict country, second only to development, the social high in finance and pri- Timor Leste, and IDA's share of ODA disburse- vate sector development, ments during this period was about 10 percent sectors, and the social sectors, and (Annex A, tables A3a and A3b). Only the EU and infrastructure. infrastructure. the United States disbursed more aid to BiH 8 W O R L D B A N K S T R AT E G Y A N D A S S I S TA N C E P R O G R A M T a b l e 2 . 2 P o r t f o l i o R a t i o s f o r B i H FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 Problem projects (%) 0 0 0 0 0 0 0 0 Number of projects at risk (%) 0 0 6.3 11.1 0 0 0 0 Project amount at risk (%) 0 0 2.8 7.8 0 0 0 0 Disbursement ratio na 429 105 50.1 28.3 26.5 10.9 18.1 during the reconstruction period, and over the Economic Policy, Economic entire post-conflict period, than did IDA. Thus Management, and Governance it appears that the Bank did play a central role The Bank addressed its objectives in in donor efforts. However, when IDA commit- governance and economic policy and manage- ments are compared, not with total donor ment through a combination of economic and assistance to BiH, but with the Bank's response sector work (ESW), policy dialogue, technical in other post-conflict countries, the exceptional assistance (TA), and lending. The Bank has nature of the BiH case stands out starkly. In worked closely with the IMF and the other FY96­99, annual commitments to BiH (includ- members of the Economic Policy Working ing TFBH) were $47 per capita, far higher than Group (OHR, EU, USAID) on economic policy in any other recent post-conflict situation (table issues. The principal lending instruments were 2.3 and Annex A, table A3c.). In addition, IDA adjustment operations. Initially the Bank commitments in the post-reconstruction period intended to negotiate a Structural Adjustment were $264 million (FY00­02), or $23 per capita Credit (SAC) that would support the establish- annually, more than double the norm of $10. ment of institutions of fiscal management at the State, FBH, and cantonal levels; the start of Lending in Relation to Objectives reforms of pensions, health finance, and social This section reviews assistance for the key insurance; a start to privatization of SOEs; and sectors linked most closely to the Bank's initiation of restructuring and privatization of objectives for BiH--governance and economic banks, along with development of a legal and management, private sector development and institutional framework for the financial finance, the social sectors (education, health, system. This proved to be far too ambitious an and social protection), and infrastructure. agenda. A TAC was prepared instead, covering A v e r a g e A n n u a l p e r C a p i t a I D A T a b l e 2 . 3 C o m m i t m e n t s f o r P o s t - C o n f l i c t C o u n t r i e s Country name and years Per capita annual average (US$) Bosnia and Herzegovina (1996­99) 47.0 Timor Leste (1999­02) 35.4 West Bank and Gaza (1994­97) 19.7 Rwanda (1994­97) 5.3 Eritrea (1994­97) 3.4 Cambodia (1992­95) 2.4 9 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y only the State and the FBH, with a much tranche conditions (this decision is criticized in reduced reform agenda dealing with unifica- the forthcoming PPAR), although the waiver tion of the customs administration (with was not required. However, under PFSAC II, a technical assistance from the EU), presentation three-tranche credit, the Bank has adhered of a privatization law to Parliament, adoption of strictly to the negotiated conditions, without a banking law, and merger of payments waivers, and both the second and third tranches bureaus. were delayed, the latter substantially. A follow- Subsequently, the Bank approved two Public up adjustment operation to the two PFSACs, Finance Adjustment Credits (PFSAC, FY98 and originally proposed for FY02 to deal with PFSAC II, FY99), which dealt with funding of the reforms of public administration and the civil State budget, development of debt management service and fiscal decentralization, has been capacity, improved efficiency and transparency under discussion for the past two years, and no in budget operations, linking annual budgets to agreement has yet been reached with the BiH a medium-term economic framework, and governments. The Bank clearly has become reform and harmonization of tax policies and more determined to push for full compliance administration. Some of the most important with essential reforms in economic policy and achievements of the PFSACs have been in management. budget management: the establishment of a The Bank has not been directly involved in Treasury System whereby all receipts and other areas of governance, such as judicial expenditures pass through a single Treasury reforms, largely because these areas have been account (supported by technical assistance from under the mandate of the OHR, although the the U.S. Treasury and USAID), and the establish- Bank has carried out a survey of corruption in ment of Auditors General and Supreme Audit BiH at the request of the government. Institutions at the State and Entity levels. These programs were comprehensive and well Private Sector Development designed. Tax reform and harmonization have In BiH, as in other parts of the SFRY, contributed to the effort to create a "single enterprises were socially owned and managed economic space" within BiH, and pension by workers' councils. The BiH economy had a reform has been important for the financial large industrial base, with half of output and sustainability of the system and the well-being of employment generated by large-scale industry. pensioners. Bank support for pension reform The pre-war economy was dominated by 10 and establishment of a Federal Health Insurance large conglomerates responsible for more than Fund (FHIF) have contributed to the effort to half of GDP. Following the war, new private find solutions to the inequalities in intercantonal enterprises emerged, mostly in construction, finances in the FBH, although several aspects of trade, and transport, but many socially owned this issue remain unresolved. and mixed enterprises had closed. The Over the course of these adjustment structure of the surviving SOEs remained operations, the Bank has substantially tightened essentially the same as in the SFRY. SOEs its insistence on adherence to conditionality. continued to own the largest banks in both the Under the TAC, which was a single-tranche FBH and RS, which lent primarily to their operation, the Bank weakened a pre-Board parent companies, usually without regard to condition, then changed it to a condition of creditworthiness. In addition, separate legal effectiveness, and then, although it was not fully frameworks for regulating the private sector met, disbursed the funds anyway. There was developed within the FBH and the RS; these also diversion of TAC funds to finance activities were a patchwork of inconsistent laws and not intended in the credit, including deficits of regulations, dating back to the SFRY and SOEs. In the PFSAC, a two-tranche operation, wartime administrations. Finally, the private there were minor delays in tranche release and sector faced a highly restrictive regulatory the Bank requested a waiver of two second- environment, a heavy tax burden, and inconsis- 1 0 W O R L D B A N K S T R AT E G Y A N D A S S I S TA N C E P R O G R A M tent tax treatment, none of which was despite the Bank's The pre-war economy was conducive to private sector development. awareness of the dominated by 10 large In the post-reconstruction phase, a significant weaknesses of such conglomerates share of Bank financial and technical assistance programs, which had focused on developing market-based institutions been implemented in responsible for more than and creating a favorable environment for private other transition half of GDP. sector development (PSD). Three areas of countries. This voucher essential reforms were identified: (i) developing privatization program has had predictably poor a business environment that promotes competi- results. tion; (ii) privatizing socially owned and state- The FY99 Enterprise and Bank Privatiza- owned assets; and (iii) developing a disciplined tion Credit (EBPAC), in addition to initiating and competitive financial sector. Many donors financial sector reforms, focused on completing have also supported PSD. USAID has provided the institutional and legal framework for privati- funds for on-lending to small and medium-size zation, beginning privatization of small and enterprises (SMEs) and participated, as did the medium-size enterprises, still following the EU, in efforts to privatize large enterprises. The voucher approach, and preparing the ground EBRD and International Finance Corporation for privatizing large enterprises, holding (IFC) have provided equity finance to selected companies, and public utilities. private enterprises. Bilateral donors (Austria, Implementation of reforms under the EBPAC Germany, Italy, Japan, Netherlands, Sweden, was much slower than anticipated and the Switzerland, and the United Kingdom) have project closed almost two years later than supported IDA-funded projects for PSD as well scheduled. While specific targets under the as their own programs. project were met, the limited extent of The Bank pursued these objectives through subsequent large enterprise privatization has lending, TA, and ESW. The ESW identified the resulted in little positive impact on overall constraints to private sector development, enterprise restructuring and performance. The leading to the design of specific lending measures undertaken by government to operations and policy conditionality.4 Through overcome the deficiencies of mass privatization a variety of lending instruments the Bank were inadequate; corporate governance of supported PSD reforms and provided financial voucher-privatized firms continues to be poor. resources, TA, and training to the private The EBPAC did not address constraints to new sector. Operations that established or strength- entry of private firms or the barriers to their ened financial institutions providing lines of efficient operation. This neglect can perhaps be credit, guarantees, or risk insurance for the attributed to an optimistic assessment of the private sector are discussed in the next section, climate for private business--Bank manage- "Financial Sector Reform and Restructuring." ment at the time claimed that Bosnia was well Under the TAC, a Privatization Agency Law ahead of other transition countries in setting up was adopted in the FBH that provided for the the necessary architec- In the post-reconstruction establishment of Entity and cantonal privatiza- ture for private markets tion agencies. While the law was adopted by the and was poised to phase, a significant share FBH Parliament in June 1996, cantonal privati- advance rapidly.6 Such of Bank financial and zation agencies did not begin functioning until an assessment was technical assistance mid-1999. Unfortunately, the law and its probably too narrowly implementation have not resolved conflict based on changes in the focused on developing among the agencies or between agencies and regulatory environment market-based institutions the FBH government, which seriously hinders for new foreign invest- and creating a favorable privatization in the FBH. In addition, the ment at the State and environment for private project supported the governments' plans for a Entity levels, while not voucher ("mass") privatization program,5 addressing local govern- sector development. 1 1 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y ment regulatory constraints. Four years after outside involvement in privatizing these enterprises. the EBPAC, the Bank is still trying to fix these The delay also reflects that the privatization process basic constraints. is bogged down by unresolved problems of The FY02 Business Environment Adjust- ownership, outstanding debts, political and social ment Credit (BAC) was the first project to focus concerns over possible workforce reductions, and exclusively on improving the environment for ethnic rivalries over future ownership. To date, no PSD. The BAC approach was to (i) facilitate large-scale privatizations have been completed, entry by creating a simplified and transparent although, as of March 2004, bids for four enterprises countrywide registration and licensing system; have been accepted and contracts with the winning (ii) streamline the environment for business bidders are being negotiated. operations by reducing companies' administra- tive and regulatory compliance costs through Financial Sector Reform rationalization of inspections and regulations, and Restructuring improving capacity to resolve commercial In pre-war BiH, as in the rest of the SFRY, disputes, and improving enforcement of commercial banks were controlled by large secured transactions; and (iii) facilitate enterprises, as owners and borrowers. Their business exit through strengthened laws orientation was noncommercial, characterized governing bankruptcy and liquidation. While by directed lending and excessive loan concen- progress is being made, the pace of implemen- tration. The war severely damaged the banking tation has been slower than anticipated. The sector. The freezing of foreign currency original closing date of end-2003 is expected to deposits of households and firms created deep be extended by a year. It is still too early to tell distrust of banks and deterred deposit if and when anticipated improvements in the mobilization. Separate banking systems and business environment will be realized. regulatory and supervisory frameworks It is clear that mass privatization of large developed in the FBH and RS. Most of the enterprises and the resulting diffusion of ownership nonprivate banks were in extremely weak has prevented restructuring and improved financial condition,7 while the small private corporate governance. The governments now banks were undercapitalized. Directed lending intend to proceed with privatization of large on a noncommercial basis still prevailed among enterprises through a tender process designed to state-owned banks. Accounting and regulatory attract strategic investors who can restructure standards did not conform to the needs of a enterprises, expand production and exports, and market-based banking system. increase employment. The FY01 Privatization The primary objective of Bank support was Technical Assistance Project (PTAC) supports to expand the availability of finance in support tender privatization of 45 of PSD. The secondary objective was to reform The governments now large state enterprises. and strengthen the financial sector itself. The intend to proceed with Other objectives of the Bank identified three key areas for reform: (i) privatization of large project include assistance strengthening the legal framework; (ii) in preparing the legal and introducing competition and freedom of entry; enterprises through a regulatory framework for and (iii) restructuring and privatizing socially tender process designed divestingutilitycompanies owned banks. to attract strategic and other public service The Bank pursued these objectives through agencies and assistance in lending (including mobilizing other donor co- investors who can capital market develop- financing), TA, training, and analytical work, restructure enterprises, ment. The loan became although there was no formal ESW on the expand production and effective only in May 2002, financial sector. The Bank has worked closely 11 months after approval, with the IMF in developing the legal and regula- exports, and increase due in part to initial parlia- tory framework for banking in both Entities, employment. mentary resistance to and has worked collaboratively with others 1 2 W O R L D B A N K S T R AT E G Y A N D A S S I S TA N C E P R O G R A M supporting financial sector development, such TAC and the EBPAC, which accounted for as the EBRD, Kreditanstalt für Wiederaufbau almost 47 percent of total commitments to (KfW), and USAID. IFC and the Multilateral financial sector operations. The first supported Guarantee Agency (MIGA) have also been initial steps for improving banking legislation active in the financial sector in BiH. Thirteen and supervision, while the second was a more TFBH and IDA projects had improved function- comprehensive effort at promoting privatiza- ing of financial institutions in BiH as an tion, restructuring, and consolidation of the objective. These included (i) six lines of credit, state banking sector. The record of implemen- with a secondary objective of improving the tation of financial sector reforms under both financial condition of participating banks; (ii) projects was mixed at best. In the EBPAC, some two adjustment operations, in which banking of the financial sector reform components reform was an essential component; (iii) two were not adequately prepared, and critical guarantee operations supporting establish- conditionality had to be revised before the first ment of an insurance agency to underwrite tranche was released. Release of the first private sector investments and exports; (iv) tranche was held up for almost five months in two projects, designed primarily with social the RS and for almost eight months in the FBH, protection and employment objectives, and required a waiver. Other conditions of the supporting micro-credit institutions (MCOs); loan had to be further developed during and (v) a TA operation, one of whose objectives implementation. As a result, implementation of was the further development of the capital important reforms was significantly delayed.9 market. The total Bank commitment of The closing date for the loan was extended resources to these projects was approximately three times in RS and five times in the FBH; the $296 million. final closing was two years behind schedule. The lines of credit were largely successful in While conditions for tranche release, particu- expanding credit to the private sector. In most larly involving bank privatization, were met in a cases, enterprises receiving financing through technical sense, in some areas substantive these projects significantly increased their reforms remain to be completed.10 production, employment, and (where applica- Two IDA operations supported MCOs. ble) exports. The credits were disbursed Although micro-finance accounted for only 3.5 quickly, and rates of loan repayment were high.8 percent of bank loans at the end of 2001, the The satisfactory performance of these lines of sector is growing rapidly. The main objective of credit stands in contrast to Bank operations in the two micro-finance credits (Local Initiatives other countries that have been less successful Project, FY97, and Local Initiatives Project II, in disbursements or repayments. One reason FY01) was to assist economically disadvantaged for this difference may be that most of the and poor entrepreneurs in starting or re- operations in BiH had at least six co-financiers starting economic activities. A secondary and involved relatively modest amounts of objective was to strengthen participating MCOs funds, so issues of over-dimensioning and to make them self-sustaining and better able to crowding out were less likely to emerge. In service a larger group of low-income clients addition, they benefited from unusually close without remaining dependent on donor supervision and oversight. Most of these assistance. A recent impact study found that projects also included financing for TA to these projects have assisted over 110,000 improve the functioning of the participating clients, about 50 percent of whom are women, financial intermediaries. However, these and have supported employment of some projects were less successful in this aspect; 200,000 workers. Repayment rates have been especially in the early years, they had only a extremely high. The average percentage of the marginal impact on the performance of banks. portfolio at risk (payments overdue for more Reforms in the financial sector were also than 30 days) remained below 1 percent supported by two adjustment operations, the through 2003. The projects are judged to have 1 3 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y Micro-finance--to assist been highly success- The ongoing FY00 Education Development economically ful in meeting their Project (EDP) seeks to improve management disadvantaged and poor primary and secondary in the sector by establishing institutions and objectives. tools such as the Standards and Assessment entrepreneurs in starting In two projects, IDA Agency (SAA), the Education Management or restarting economic funds were used to Information System (EMIS), and the Council of activities--is growing stimulate private invest- Higher Education, which operate across ments through establish- Entities. These structures are important for rapidly. ment of a Political Risk improved performance of the education and Guarantee Agency and to support private system. sector exports from BiH through performance There is considerable evidence that this bonds. The Investment Guarantee Agency (IGA), agenda has broad ownership, fostered in part established in 1996 and supported by these by use of pilots to introduce innovative operations, has developed a strong international approaches (such as the Quality Fund pilot), reputation. the use of collaborative TA and ESW, and partnerships with agencies such as the Council Support for the Social Sectors: Education of Europe and the Organization for Security The Bank's initial support for education and Cooperation in Europe. focused on rehabilitation of primary schools through two emergency reconstruction Support for the Social Sectors: Health operations, the FY96 Emergency Education Even before the war, the BiH health system had Reconstruction Project (ERP) and the FY98 serious problems, comparable to those in most Second Education Reconstruction Project other transition countries. Its costs were (ERP II). While both operations mobilized unsustainable because it provided almost substantial donor co-financing, the ERP II universal access to a wide range of services, followed the ERP by only 17 months, when it oriented toward costly curative treatment by became apparent that co-financing in the first specialists, often in hospitals, while giving project would fall below expectations. In lower priority to more cost-effective basic addition to rebuilding and repairing schools, health and disease prevention approaches. the operations funded textbooks and teaching The Bank's first health project was the FY96 materials and supported capacity-building in War Victims Rehabilitation Project (WVRP), Entity Education Ministries. The second project which was designed to meet the urgent included a pilot Quality Fund to help raise medical needs of the vast numbers of people teaching quality, and TA for the first major with war-related physical and mental trauma analysis of BiH's post-conflict education and to reintegrate them into normal produc- system. This report,11 prepared with the tive life. It sought to do this through a new, Council of Europe, was developed and cost-effective, decentralized service delivery discussed with the governments, NGOs, and model, establishing community-based centers donors in order to build consensus behind its for physical and mental rehabilitation within or recommendations. The Bank has also analyzed near existing health centers. This operation funding inequalities in the education system in was quickly followed by the FY97 Essential the Poverty Assessment. Hospital Services Project (EHSP), which These initial operations focused on focused on urgent reconstruction needs, while reconstruction, but they also supported analyt- preparing for subsequent reforms. It sought to ical work and included pilot components that restore at least a minimum level of service at prepared the ground for basic reforms to essential hospitals and clinical centers by improve quality and accessibility of public funding (a) physical reconstruction, (b) education. Their outcomes have been rated medical equipment and supplies, and (c) satisfactory, with sustainability judged likely. upgrading of clinical skills and practices. It also 1 4 W O R L D B A N K S T R AT E G Y A N D A S S I S TA N C E P R O G R A M provided TA, in collaboration with the EU and way, while in some The most important the U.K. Department for International cantons different funds achievement is a new Development (DfID), for the design and covered different munici- model of primary health implementation of reforms of the health palities. The FHIF had care delivery that finance system to make it sustainable and more been legally established, equitable, particularly in the FBH, where health but no decision had been supports more effective financing was split between two ethnically made on how it would be and higher-quality based systems. The outcome of both of these funded or what services it primary health care closed projects was rated satisfactory. Institu- would provide. Given the tional development impact was rated as importance of this issue services that are better modest for WVRP, but substantial for EHSP. for overall public resource focused on the health Sustainability is considered likely for both management, as well as needs of the population. projects. Bank performance was rated satisfac- for health finance, the tory for WRVP and highly satisfactory for EHSP. FY99 Second Public Finance Structural Adjust- One area that could have been improved was ment Credit (PFSAC-II) supported implementation monitoring, especially for WVRP. of the 1997 legislation and associated amendments The most important achievement of the in the FBH, and was successful in getting these Bank's assistance program in health to date is the measures implemented. The ongoing FY03 Social development and introduction of a new model Insurance Technical Assistance Project (SITAP) of primary health care delivery through the provides TA for developing capacities and identify- ongoing FY99 Basic Health Project (BHP). This ing options to resolve the critical finance and approach, developed in close partnership with insurance problems still facing the health and the Ministries of Health of the Entities and pilot pension systems. cantons, the Canada International Development Association (CIDA), and Queens University, Support for the Social Sectors: Social Canada, supports the staffing, training, and Protection and Employment operation of Family Medicine teams in pilot The former SFRY system provided for virtually cantons in the FBH and pilot regions in the RS to guaranteed employment and a generous but deliver more effective and higher-quality primary unsustainable social protection system. The health care services that are better focused on conflict in BiH shattered this system. Of the the health needs of the population. This 900,000 workers employed in the formal sector operation is highly relevant for BiH's needs and in the early 1990s, only 72,000 still had jobs at appears to be achieving good results. the end of the conflict, and new categories of The health insurance reforms supported under the needy--veterans, civilian victims of war, the EHSP, particularly the unification of ethnically orphans, the disabled, and refugees--emerged. based funds in the FBH, encountered strong politi- By 1995, with the collapse in employment, the cal resistance. A compromise FBH Health Insurance ratio of pensioners to workers had deteriorated Law was approved in 1997, mandating that the from 1:3 to 1:1.3. Pensions were not paid and existing funds be replaced by a unified fund in each arrears built up rapidly; social assistance of the 10 cantons and an FBH-wide "solidarity fund" programs collapsed, along with the tax revenues (FHIF). The FHIF was to cover certain catastrophic that funded them; and the governments' capaci- illnesses and some additional services, thus permit- ties to manage these programs were also ting some degree of risk pooling across the cantons, severely weakened. Ethnic tensions were a and potentially reducing the wide disparities in the driving political force behind the fragmentation revenue base across cantons. However, implemen- of social protection programs on ethnic and tation of this law stalled; by mid-1999 only a few cantonal lines, with no scope for revenue cantons had established their unified funds. Other equalization across administrative boundaries. cantons continued to treat contributions as general Labor market rigidities reduced labor budget revenue and allocated them in an unclear mobility and the ability of firms to respond to 1 5 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y market pressures by restricting layoffs and Three adjustment operations, PFSAC I and II encouraging labor hoarding through a costly and the FY01 Social Sector Adjustment Credit "waitlist" system,12 which resulted in large (SOSAC), supported policy and program arrears in wage payments by cash-strapped reforms in social protection and labor markets. firms. This complicated privatization and One component of PFSAC I focused on unifica- discouraged local and foreign investment. tion of the two ethnically based pension funds The Bank viewed PSD as the primary means in the FBH and introduced other reforms to to expand employment. In addition, the Bank's improve the financial viability of the system. TA program in social protection and employment from the Netherlands and Japan helped to included (i) a series of direct project interven- design and implement a new pension law and tions designed to protect income or improve additional reforms. PFSAC II deepened pension employment opportunities in the short term; reforms with particularly strong measures, (ii) three adjustment operations and two introduced through support of the OHR, to related TA projects aimed at making social restore financial balance. It also supported protection programs more effective, equitable, initial work on labor markets, social assistance and financially sustainable and promoting reforms, and the nationwide LSMS, a major private sector growth and employment by input into subsequent poverty and social removing labor market rigidities and rationaliz- program analysis. The SOSAC built on work ing unemployment benefits; and (iii) analytic initiated under PFSAC II, focusing primarily on and advisory work to build understanding, reducing labor market rigidities, including public awareness, and consensus for reforms, elimination of the waitlist system. SOSAC was leading up to support for the Poverty accompanied by a TA project (Social Sector Reduction Strategy Paper (PRSP) process. Technical Assistance Credit (SOTAC)) to The first intervention was a social protection support design of a follow-up adjustment component of the FY96 Emergency Recovery operation to deepen reforms in labor markets Project, supporting programs for orphans and and social assistance. The FY03 SITAP provides the disabled, as well as implementation of a TA for longer-term reform of pensions. cash-transfer program for the neediest, funded by donor grants. This project was rated Infrastructure satisfactory. Two projects, the closed FY97 Infrastructure, broadly defined, has been the Emergency Demobilization and Reintegration largest sector of Bank activity in BiH. During Project (EDRP) and the ongoing FY00 Pilot FY96­03 the Bank lent $350 million, or over 35 Emergency Labor Redeployment Project percent of total IDA commitments, for 14 (PELRP), focused on creating employment infrastructure projects, covering public works, opportunities, primarily for demobilized energy, transportation, water, and sanitation. soldiers. While of limited impact (the EDRP, Given the extensive destruction of BiH's rated moderately satisfactory, assisted some infrastructure during the war, the initial 21,000 clients, only 5 percent of the soldiers emphasis on rapid reconstruction of essential demobilized in 1996, at an average cost of $440 infrastructure services was entirely appropri- each, and the PELRP is assisting only 6,000 ate. The Bank began implementation of eight clients at a cost of $3,000 each), a follow-up emergency infrastructure projects in FY96­97 operation is under preparation with a much and added two more in FY98. In the case of broader target group. Two other operations, energy, initial assistance was provided for one closed and rated satisfactory, the other electricity, natural gas, district heating, and the ongoing, supported local infrastructure works, coal industry, which was crucial for power usually small-scale and labor-intensive. Finally, generation. Aid to the transport sector was the two MCO projects discussed above have equally broad, covering repair of main and rural had a significant impact on employment roads, rebuilding bridges, restoring public creation. transport in cities through the import of buses, 1 6 W O R L D B A N K S T R AT E G Y A N D A S S I S TA N C E P R O G R A M and repairs to the railway system and to civil reconstruction require- The infrastructure aviation infrastructure. Other projects funded ments, two public ex- portfolio provides water supply, sewage, and solid waste invest- penditure reviews, a comprehensive coverage, ments. The FY96 Emergency Recovery Project, creditworthiness review, both sectorally and which also included non-infrastructure invest- an anti-corruption study, ments, was confined to the FBH. However, a a private sector study, a geographically. Projects similar project was undertaken for the RS in Foreign Investment Ad- were highly relevant to FY98. The FY97 Emergency Public Works and visory Service (FIAS) the country's needs, were Employment Project financed over 400 sub- study of barriers to projects in road repair, electricity distribution, investment, a labor mar- well designed and and water and sewage. It benefited nearly 90 ket study, support for a appraised, and were percent of all municipalities in both Entities. household survey using executed expeditiously. Despite the success of the reconstruction LSMS, a poverty assess- effort, however, there remains a huge backlog ment, fiduciary ESW, and of essential rehabilitation and maintenance support for a PRSP. Bank reports have been, in work to be completed. general, widely disseminated and discussed with Following the reconstruction effort, new governments, in some cases helping to set the projects were funded in water, sanitation, and reform agenda (such as in PSD) or serving as the solid waste, and the Bank is now financing a third basis for agreements under adjustment lending round of projects in electricity and road (the BAC). However, in PSD, analytical work transport, in which the main objectives have examining how loss-making enterprises continue shifted from physical reconstruction to institu- to operate has only recently been initiated, in tion-building, financial viability of service collaboration with DfID. Also, until recently the providers, and unification of services. The Bank's Bank had not carried out any formal analysis of infrastructure portfolio in BiH is impressive for its the financial sector, which is surprising given the comprehensive coverage, both sectorally and extent of Bank involvement in financial sector geographically. These projects were highly reforms, although a review of the banking sector relevant to the country's needs, were well is currently under preparation. The LSMS, a key designed and appraised, and were executed analytical tool that established a national database expeditiously. An earlier report on BiH concluded for analysis of poverty, was completed in 2001. It that "the overall short-term objective of jump- also provided credible data for assessing the starting the economy was achieved, along with a impact of economic and social policies on the rapid and visible improvement in the restoration poor. It has thus been a critical input into BiH's of basic infra-structure" (OED 2000). Of the 10 PRSP process and the country's resulting completed projects, OED rated 8 as satisfactory Economic Development Strategy. Four formal and one as highly satisfactory. The Water, Sanita- ESW outputs have been evaluated by the Quality tion and Solid Waste Project was rated only Assurance Group (QAG), all of which were rated moderately satisfactory. Sustainability was rated satisfactory. likely for 9 of these 10 projects, but institutional development was rated modest in most cases. Aid Mobilization and Coordination Finally, the Bank has prepared an Infrastructure The Bank was largely successful in mobilizing co- and Energy Strategy Paper (FY03) to guide future financing for BiH (table Bank reports have been assistance in the sector. 2.4). As indicated earlier, the Bank developed widely disseminated and Analytical and Advisory Activities projects across the discussed with The Bank has produced an impressive variety of spectrum of reconstruc- governments, in some work of generally high quality. This includes joint tion activities, determined Bank/EU economic reports for the early donors' the amount that IDA cases helping to set the meetings that established the case for BiH's would commit to each reform agenda. 1 7 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y project, and then solicited co-financing or parallel pant. At the beginning, local donor working financing. A significant proportion of the funding groups were established in each sector. The mobilized was in the form of donor trust funds, Bank was involved in all the sectors where it managed by the Bank. In FY96­99 donors funded had projects, but did not chair any group.13 An 54 percent of the cost of projects prepared by IDA, Economic Task Force organized by the OHR, and the unfunded gap was only 12 percent of total which included all aid agencies, met project costs. The donors most heavily involved in infrequently, but it was too large to be effective. co-financing with IDA were Canada, Italy, Japan, the Many bilateral donors were also participants in Netherlands, Norway, Sweden, and Switzerland. regular meetings of the Peace Implementation The Bank has been heavily involved in aid Council (PIC), which were primarily political in coordination activities in BiH, both at interna- character. The Bank has also participated in a tional meetings of donors and in the country. small economic policy group that also includes The Bank, in collaboration with the EU, the OHR, EU, IMF, OHR, and USAID. invested large amounts of staff and manage- Despite these attempts at coordination on the ment time in the donor meetings held from ground, the results were probably not commensu- 1995 through 1999, and the effort paid off in rate with the effort expended. First, there was pledges, commitments, and disbursements sometimes communication but not genuine over the reconstruction period. However, coordination--each donor preferring to proceed despite the success of these early meetings, with its own projects despite what others were and repeated government requests to continue doing. Second, following the intensive reconstruc- them, no further Consultative Group­type tion period most donors have begun to reduce the meetings have been held since 1999. The size and scope of their programs, which reason seems to be donor concerns about diminished the perceived need for, and interest in, governance and disappointment with the slow coordination. Local aid coordination currently pace of reforms in the post-reconstruction appears to operate on an ad hoc basis. Third, and period. The government has again requested a most important, the governments of BiH, at meeting for sometime in 2004, to present the whatever level, have not been actively involved in PRSP as the government's economic and social aid coordination. The Bank has proposed that the policy statement. State Ministry of Foreign Trade and Economic Local aid coordination has been a challenge Relations take the lead in donor coordination, and from the very beginning, given the large the UNDP has been working for the past two years number of donor countries and agencies on a new structure for government-led aid coordi- involved and the pressure to carry out nation through this same ministry, but without reconstruction work as quickly as possible. notable progress. The EU has proposed the Nevertheless, genuine efforts at coordination Coordination Board for Economic Development were made, and the Bank was an active partici- and European Integration as the focus for donor C o n t r i b u t i o n o f I D A a n d O t h e r D o n o r s t o T a b l e 2 . 4 I D A P r o j e c t s Bank-managed Other Project cost IDA + TFBH IDA + TFBH donor trust co-financing Donor Gap Fiscal year ($m) ($m) (%) funds ($m) ($m) (%) ($m) 1996­97 1,162 356 30.7 237 418 56.3 151 1998­99 867 340 39.2 122 319 50.9 86 1996­99 2,028 696 34.3 359 736 54.0 237 2000­03 541 287 53.0 6 232 44.0 17 1 8 W O R L D B A N K S T R AT E G Y A N D A S S I S TA N C E P R O G R A M coordination. A hopeful sign, however, is the effort mentioned Coordination Governments of BiH, at of the State government over the past two years to Board, into a permanent whatever level, have not involve donors in consultations on the PRSP, which Economic Policy and been actively involved in has been very well received by donors. If the Planning Unit (EPPU), aid coordination. government carries out a plan to convert the PRSP this would be the logical preparation unit, possibly merged with the above- base for government-led aid coordination. 1 9 3 Outcomes Overall Economic Performance Following reconstruction, when growth was primarily aid-driven, the mo- mentum of economic growth slowed significantly, with an estimated average GDP growth rate for 2000­03 of 4.7 percent. This has left GDP and GDP per capita substantially below the pre-war level (table 1.1). It also suggests that there has been limited progress on further poverty reduction. There are some pos- itive factors in the current economic situation, such as a stable currency, low inflation brought about by sound monetary policy (the Central Bank operat- ing as a currency board), and a falling fiscal deficit. There are, however, many other worrying overall tax rates. In spite of some delays in trends, such as continued high unemploy- reaching the desired results, OED considers that ment,1 low domestic savings and investment,2 a the intensive efforts expended in preparation declining rate of growth of industrial produc- and supervision of these credits rate as best tion, and an unsustainable trade deficit (table practice. The Bank also provided substantial 3.1). While there appears to have been an amounts of TA for a broad range of issues taken upswing in private foreign investment inflows up by these credits, and this TA had the added in the past two years, the level is still far below benefit of creating opportunities for bringing that needed to substantially increase the officials from the Entities together to discuss growth rate. common problems. In the future it is possible that a significant impact on economic policy- Economic Policy, Economic making and economic TA had the added benefit Management, and Governance management will also The Bank has had some successes in reforming come from the PRSP of creating opportunities economic policies and management in BiH. A process, which has for bringing officials from great deal was achieved under PFSAC and PFSAC focused the attention of the Entities together to II in budget management, tax harmonization, both State and Entity and coordination, including establishment of a governments on a pri- discuss common common external tariff, as well as reductions in ority reform program for problems. 2 1 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y P o s t - R e c o n s t r u c t i o n E c o n o m i c T a b l e 3 . 1 T r e n d s i n B i H 1998 1999 2000 2001 2002 2003a Fiscal deficit/GDP (%) ­7.5 ­8.9 ­7.0 ­2.5 ­2.0 0.4 Growth rate of industrial production (%) 23 14 11 ­5 12 4.5b Official unemployment: RS (%) 40.5 40.3 40.9 38.3 38.2 Official unemployment: FBH (%) 39.0 38.9 39.9 42.7 43.3 Trade balance/GDP (%) ­48.8 ­43.3 ­44.9 ­40.4 ­49.9 45.3c Current account balance/GDP (%) ­9.0 ­8.9 ­12.5 ­16.0 ­18.9 ­17.4 a. Estimated . b. Six months data. c. Nine months data. Source: PRSP, World Bank and IMF data. economic recovery and EU integration. The GDP compared with an average for EU State Council of Ministers intends to convert the countries of 1.5 percent). A positive outcome is PRSP preparation unit into a future Economic the establishment of Supreme Audit Institu- Policy and Planning Unit that, if supported by tions in 2000, supported by PFSAC II, but the Entities, could develop statewide policies government, including parliamentary, follow- leading to a "single economic space." up on audit findings has been weak. Progress has been made in some areas of In governance and anti-corruption, the Bank public sector management, not all of which has prepared the diagnostic report on corrup- were areas of direct Bank involvement, but in tion referred to earlier. The government issued which the Bank was associated with the IMF, an action plan for combating corruption in OHR, EU, and other key donors. These include 2002, but little concrete action has been efforts to improve collection of customs duties, evident. Corruption remains a serious problem which have seen only partial success. A State in BiH, as confirmed by the most recent Border Service was established in 2001 to Transparency International Survey. control smuggling, but its control remains weak. Estimates of customs revenues lost to Private Sector Development smuggling each year are as high as Euro 250 While the Bank's credit projects have million. Tax evasion on indirect taxes has been contributed to PSD, the Bank's efforts to reduced over the years through harmonization support SOE privatization and reforms to the of tax rates, but remains a serious problem. It is business environment have had much less anticipated that introduction of a Value Added success. It is true that, after a slow start, large Tax (VAT) by 2006 will be a major step in numbers of small enterprises were privatized improving revenue performance. Whether the through use of vouchers; by May 2003, about VAT could or should have been introduced 78 percent of small enterprises in the Federa- sooner, and whether the Bank and IMF should tion, and 55 percent in the RS, had been have pressed harder on this issue, is subject to privatized.3 But the outcome of mass privatiza- debate, but the majority view in BiH is that this tion of large enterprises has been generally could not have been accomplished any sooner. unsatisfactory. Out of 1,850 large SOEs, over While budget deficits have been reduced from 1,000 have been sold through mass privatiza- a high of over 10 percent of GDP to 2 percent tion schemes, with the generally unsatisfactory in 2002, there remain problems in the composi- outcomes mentioned above. Another 440 large tion of government spending--for example, enterprises (263 in the Federation and 177 in defense spending still absorbs too high a share the RS) have been designated for tender of Entity budgets (approximately 6 percent of privatization to strategic investors, and one- 2 2 O U T C O M E S third of these are to be privatized with the help Overall, the Bank's There is opposition to of the international community, including the assistance program in privatization because of Bank. So far, only 15 of these enterprises in the PSD is rated unsatisfac- concerns about the fate of FBH and 4 in the RS have been sold. There is tory. It did not make opposition to involvement of donors in privati- acceptable progress in workers and the local zation and to privatization in general because two of its major community, as well as of concerns about the fate of workers and the objectives. First, the because of the popular local community, as well as because of the overall privatization pro- popular perception that state assets are being gram to date must be perception that state stripped by managers. Potential investors are judged unsuccessful.5 assets are being stripped also discouraged by lack of clear ownership of The voucher-privatized by managers. many SOEs and by heavy enterprise debts, firms have shown little including liabilities for unpaid wages and incentive to restructure pension contributions. Without an agreed and become more productive, defeating the framework for addressing these issues, it is main objective of privatization, and the privati- likely that potential foreign partners will be zation of "strategic" enterprises through tenders reluctant to buy large state enterprises. has barely begun. Second, the business environ- The environment for PSD remains ment has not improved significantly, and unfriendly. The heavy official tax burden on remains one of the more unfriendly regimes in enterprises discourages economic activity in the region. The legal, regulatory, and tax regimes the formal sector. The rules governing entry remain burdensome and difficult for the private and operation of businesses still include sector. unnecessary and overlapping regulations and Finally, the Bank did not focus sufficiently on inspections, which provide governments with the problem of loss-making SOEs that have significant power over private businesses. continued to operate. Experience elsewhere Corruption remains a major problem, has shown that the continuing operations of undermining the activities of efficient and insolvent SOEs hampers development of honest businesses, while benefiting the less private sector activity by absorbing scarce efficient and corrupt. Efforts are now under financial resources or adds to domestic debts way to address these constraints, but they are that will inevitably become the responsibility of still at an early stage. According to the EBRD's government. Until recently there has been no estimate, the private sector's share in GDP rose analytical work by the Bank on this problem, from 35 percent in 1998 to 50 percent in 2002,4 and there have been insufficient efforts to force but it remains one of the lowest percentages the closure of such enterprises. among transition countries. And an estimated two-thirds of formal employment is still in the Finance public sector. The outcome of the Bank's assistance program An EBRD analysis of the progress in transi- in the financial sector is judged moderately tion countries (in large-scale and small-scale satisfactory. Acceptable progress was made in privatization, governance and enterprise reforming and privatizing the banking sector. restructuring, and the share of the private New commercial banking laws were adopted in sector in GDP) shows that BiH ranks near the both Entities and independent banking supervi- bottom of the group. In privatization (small- sion agencies were established. Minimum and large-scale), BiH belongs to the lowest- capital requirements have been raised substan- performing 5 countries out of 27, and in terms tially and the banking agencies in both Entities of governance and enterprise restructuring, have recently intervened to place weak banks, only 5 countries rank below BiH, although it both public and private, under provisional has improved its standing somewhat since 1998 administration. A state-level deposit insurance (EBRD, various years). fund was introduced in October 2002, and over 2 3 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y half of the commercial banks now participate in proportion of the money supply, indicating a the fund. Merger and consolidation of banks is lack of public confidence in the banking under way; the total number of banks fell from system. At the same time, commercial bank 72 in 1998 to 37 in 2003. Privatization of state- credit to the private sector (households, owned banks began in 1998. All state-owned nonfinancial enterprises, and others) in banks are now in the RS, and all but seven in the relation to GDP declined between 1997 and FBH (including two development banks) have 2003. In addition, much of this credit has been been privatized. The government share in bank extended to households, and a large share of capital had fallen to less than 1 percent in the this credit undoubtedly finances informal RS and to 13 percent in the FBH at end-2003. sector economic activity. The inescapable The participation of foreign capital in banks has conclusion is that significant expansion of bank increased to 68 percent in the FBH and to 65 credit to the formal private sector is not yet percent in the RS; most of the new investors are taking place. large, reputable European banks. In addition, The EBRD's transition indicators for the although there was initial skepticism in the financial sector include progress in banking Bank and in the country about the MCO reform and interest rate liberalization operations, the evidence shows that they have combined with judgments on the solvency of been highly successful. commercial banks, adequacy of the legal and Nevertheless, challenges remain in the regulatory framework for banking and bank financial sector. A few problem banks, both supervision, and reductions in the importance public and private, still operate. While the of directed and subsidized credit. In 2003, capital position of the major banks is satisfac- among all transition countries, only Belarus, tory, there are too many small, undercapital- Russia, Tajikistan, Turkmenistan, and ized banks, and further consolidation is likely. Uzbekistan were ranked below BiH. There are weaknesses in the banking agencies, and a need for stricter enforcement of pruden- Education tial regulations, establishment of new account- The overall outcome of Bank assistance in the ing and auditing standards, and a stronger legal education sector is considered satisfactory. framework for secured transactions. The program has made reasonable progress The Bank's strategy in the financial sector toward the relevant objectives. The two was to support reforms to improve mobiliza- reconstruction projects directly assisted in tion of savings and their reallocation to the bringing the net primary school enrollment private business sector. The reforms have not rate to about 93 percent by 2001.6 This yet led to these results. Table 3.2 shows that represents remarkable progress from the currency outside banks has risen sharply as a situation at war's end, bringing BiH close to S i z e o f I n t e r m e d i a t i o n a n d C r e d i t t o t h e T a b l e 3 . 2 P r i v a t e S e c t o r , 1 9 9 7 ­ 0 3 1997 1998 1999 2000 2001 2002 2003 Currency outside banks/M2 (%) 9.6 10.5 23.8 26.4 35.9 34.2 28.9 Private sector credit/GDP (%) 40.1 38.3 31.9 31.0 31.6 38.7 43.2a Claims on private sector nonfinancial enterprises and cooperatives/GDP(%) 38.0 34.9 28.7 26.7 24.6 24.9 25.7a a. October 2003 data. Source: Second and Third Reviews under Standby Arrangement, IMF, April 28, 2002, table 4, p. 38. Central Bank of BiH Monetary Survey (latest years) on Web site. 2 4 O U T C O M E S other EU accession countries (table 3.3). Health The broad indicators of Another positive factor, shown by the LSMS Since the end of the the health status of survey data, is that public spending on primary conflict, the broad Bosnia's population have education benefits the poor more than the indicators of the health better-off,7 partially offsetting the wide dispari- improved substantially. status of Bosnia's ties in per-student spending brought about by population have im- the highly decentralized system of intergovern- proved substantially, to levels close to or better mental finance, especially in the FBH, and the than pre-conflict levels, and well within the wide differences in revenue capacity across the range of comparator countries. The infant country. mortality rate (IMR) has fallen steadily from In addition, preliminary reports from an 14.0 per 1,000 in 1996 to 7.6 in 2001, only ongoing assessment of the Education Develop- slightly above the pre-conflict level of 7.4. Life ment Project's Quality Fund suggest that useful expectancy for men and women has risen to 71 innovations in teaching and learning are being and 75 years, respectively, slightly above pre- introduced in many schools throughout the conflict levels, and also within the range of country. The decision of the RS government to comparator countries (World Bank 2002b). allocate additional budget resources to While these results cannot be attributed only to maintain spending on this program as IDA the Bank's assistance program or to Bosnia's funds are phased out indicates significant health system, they indicate that the system has support for and ownership of this program. recovered sufficient functionality to support Drawing on collaborative analytical work with the restoration of these relatively good health the Council of Europe and EU specialists, the indicators. assistance program has helped to establish The outcome of the Bank's interventions in strategically important institutions that operate the health sector can be regarded as satisfac- across the entire country (such as the Higher tory. The Bank's speed of response through the Education Council and the Standards and two emergency projects contributed signifi- Assessment Agency). There is substantial cantly to the reconstruction objectives in the cooperation between the Ministries of sector. In addition to focusing on such urgent Education across Entity lines, in part because post-war problems as assistance to war victims, of these new local institutions, as well as the the Bank's involvement in the health sector has convening power of the Bank. also included developing a new, cost-effective E n r o l l m e n t R a t e s , M o s t R e c e n t T a b l e 3 . 3 E s t i m a t e Country Primary Secondary Tertiary Latvia 92.3 68.5 46.5 BiH 92.8 72.6 24.2 Lithuania 95.5 64.8 39.2 Slovenia 97.4 93.3 51.0 Estonia 97.5 71.9 45.0 Czech Republic 97.7 75.9 26.0 Slovak Republic 107.5 80.0 22.5 Note: BiH data are net enrollment rates for 2001; all others are gross enrollment rates (for 1999), and hence overstate enrollments relative to BiH. Catic esti- mates RS and FBH gross primary enrollments at 98.4 and 99.1 percent, respectively. Data ranked by primary school enrollment rates. Sources: For BiH, LSMS, 2001; all others from Expenditure Policies Toward EU Accession. 2 5 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y model of primary health care, helping to across ethnic boundaries in ways that should rehabilitate the tertiary system to ensure at least contribute to more effective management and a minimal level of urgently needed services, and delivery of health services in the future. preparing the technical groundwork for reforms of health insurance. The highly promis- Social Protection and Employment ing results under the Basic Health Project-- There have been some significant gains in which pilots a new model, based on Family pension reform: a system of pay-as-you-go has Medicine Teams, for delivering primary health been introduced, which limits pensions to care and providing gatekeeper functions for the contribution receipts in the previous month. rest of the system--contribute directly to the This has achieved some financial balance and objective of affordable and equitable social has stopped the rise in arrears. In addition, the services, as well as to more efficient use of minimum basic pension is now more adequate public resources and better governance. The and better protected. As a result of these increased cooperation across ethnic boundaries changes, and in contrast to many other transi- in a number of areas is a welcome development tion countries, those over retirement age have in its own right, and serves the goal of strength- a lower incidence of poverty than the general ening BiH's weak and fragmented governance population (13.0 percent versus 19.5 percent). arrangements. In addition, the ethnically based pension funds Despite the significant progress outlined in FBH have been merged, greatly assisting above, the BiH health system still has serious, labor mobility and removing one source of deep-rooted problems. These are reflected in ethnic division. its high costs: public spending on health was Nevertheless, a large reform agenda remains. 7.7 percent of GDP in 2000, compared with a The underlying system is still unstable, with recent average for comparator Central and accrual rates and pensioner/contributor ratios Eastern European Countries (CEEC) in transi- that are too high in both Entities. Contribution tion of under 5 percent. In 2002, spending on compliance is low, and firms have strong health rose to 7.9 percent of GDP. These high incentives to evade contributions. Weak links averages are driven by the high costs of operat- between contributions and benefits reinforce ing in the decentralized and fragmented this trend. Substantial arrears have accumulated structures of FBH, where spending rose from in contributions from firms under stress, which 8.4 to 9.1 percent of GDP. In contrast, health undermines stability and complicates privatiza- spending in the RS fell slightly, from 5.8 percent tion. While contribution rates are not out of line to 5.6 percent of GDP. When payments for with those of other transition countries, as a tax private services and legally mandated co- on labor they discourage labor-intensive payments for public services and other out-of- growth. Reducing these rates does not seem to pocket payments are included, total costs are be a near-term option, but should be consid- still higher. As a result, financial sustainability 8 ered as a part of broader reforms. Finally, there of the system remains a serious issue. remain issues of pension portability across Achievements in health finance have also Entities. Analysis of these pension finance been limited. The replacement of the two issues is being supported by the Social ethnically based Health Insurance Funds in the Insurance Technical Assistance Project. FBH by 10 canton funds and the Entitywide FHIF In labor markets, the two Micro-credit represents only very limited progress toward a Organization projects have achieved significant unified, uniform system of health insurance results in employment generation. Other across the entire Entity. That even this imperfect positive outcomes include reducing rigidities solution required the leverage of PFSAC II is imposed by the previous labor code and indicative of the intensity of ethnic divisions at reforming the system of unemployment the time. More recently, however, there has benefits. Firms can now hire workers on a been progress in cooperation and coordination wider range of terms, especially on contract, 2 6 O U T C O M E S and release workers without as many restric- needs of the power There have been some tions. The waitlist process has been abolished, sector. Thus, within a significant gains in and there has been a substantial reduction in two-year period, electric- pension reform, but the the number of waitlisted workers: in the FBH ity supply returned underlying system the number declined from nearly 88,000 in almost to pre-war levels 1997 to 8,800 in 2001. There is some evidence in all major towns, remains unstable. that removal of these labor market restrictions meeting one of the facilitated specific foreign investments and crucial preconditions for resumption of acquisitions, and a survey of 12 private start-up economic growth. At completion of the Water, and newly privatized companies found that Sanitation and Solid Waste Urgent Works managers now viewed these laws as liberal, and Project it was estimated that it had resulted in no longer a constraint to doing business. In improved water supplies for 300,000 people in addition, collective wage agreements no longer 26 municipalities and the supply coverage had apply automatically to private firms, and others been expanded for another 60,000 people. The that did not take part in the agreement first emergency transport project financed works (although it is likely that these agreements in the FBH for the rehabilitation of road sections continue to have a large influence through on about 900 kilometers of the main network informal pressures). Rationalization of and reconstruction of 32 bridges. At completion unemployment benefits (reducing the level of this project, there were no longer any physical and duration of benefits) and introduction of obstacles to the functioning of the railway cash rationing led to a two-thirds reduction in system. From a situation in which no civilian benefits but has insured the financial stability flights could use Sarajevo Airport in the spring of of the system. The result is a system that is 1996, 10 carriers had resumed services to more affordable and less distortionary. The Sarajevo by the end of the project. The runway legislation is harmonized across Entities. In the had been repaved, the airport area cleared of FBH, a Federal Employment Institute fund is mines, the control tower rebuilt, and safety as allocated 30 percent of all unemployment well as fire fighting equipment provided. insurance tax revenue, which it reallocates to In summary, the infrastructure projects were the cantonal funds on the basis of need. The successful in meeting their physical objectives, new institutional framework will eliminate and the development impact of the infrastruc- ethnically based employment services. ture portfolio was strongly positive. The rapid Effective participatory processes and partner- revival of economic activity in 1996­99 could ships, especially with the International Labor not have occurred without these investments. Organization (ILO), were instrumental in Equally, the welfare gains to the entire popula- building consensus behind these labor market tion from the restoration of normal electricity, and social protection reforms. The outcome of heating, water supply, and public transport Bank assistance in social protection, employ- services were enormous. ment, and labor markets is judged satisfactory. But serious institutional and policy issues remain. BiH pays a heavy economic price for the Infrastructure fragmentation of infrastructure services The IDA-financed infrastructure projects have between Entities and the associated prolifera- had a major impact in rebuilding capacity and tion of government The rapid revival of restoring levels of service. The overall outcome oversight and coordina- in these sectors is rated satisfactory. Electricity tion agencies. For economic activity in production from Electroprivreda BiH's (EPBiH) example, BiH has five 1996­99 could not have rehabilitated power plants rose by two-thirds by public sector companies occurred without these the time of completion of the first Emergency involved in gas supply, Electric Power Project. Coal production doubled three electricity utility investments in between 1996 and 1998, keeping pace with the companies, and three infrastructure. 2 7 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y electricity regulators. This is clearly excessive maintain a sound banking system. The Bank for a country with a population of less than 4 was also instrumental in establishing the million. Apart from the cost of duplication and Investment Guarantee Agency for issuing difficulties of coordination, such fragmentation guarantees and credit risk insurance in support also works against improving financial viability of BiH enterprises; the institution is doing well, and raising the investment resources that are and it is expected that over time it will become badly needed. The present institutional BiH's export credit agency. The strong growth arrangements do not appear to be sustainable of micro-finance institutions owes much to the over the medium to long term. Bank's catalytic role through the two local initiatives projects. These institutions compare Overall Rating favorably with similar institutions worldwide The overall outcome of Bank assistance in BiH and play an important role in alleviating the is rated satisfactory. This rating is influenced in conditions of poorer and disadvantaged part by the highly satisfactory outcomes in entrepreneurs. reconstruction, a major focus of Bank IDI in the education sector can be rated as assistance in the first half of the period under substantial, especially given the development review, balanced against the more mixed of inter-Entity institutions (Standards and outcomes, mostly satisfactory but some less so Assessment Agency and HECB) and systems (such as in PSD), at the sectoral level. (Education and Management Information System) that are important for designing and Institutional Development Impact implementing subsequent reforms. It can also The overall institutional development impact be rated as substantial in the health sector, (IDI) of the Bank's assistance program is rated given the new model for primary health care as modest, in an exceptionally difficult context. and the increased cooperation across Entities However, IDI varies by sector and thematic and ethnic boundaries. area, as discussed in the following paragraphs. IDI has arguably been high in the areas of In macroeconomic management, the IDI of social protection and labor markets: many the Bank's support to capacity building in developments in these areas supported the budgets, tax policy, debt management, and capacity in BiH to work across boundaries, a accounting and auditing is rated substantial. significant institutional change. Outstanding The Bank has also contributed to the accumu- examples include carrying out the LSMS in a lation of knowledge and expertise in pensions, uniform way across Entities; unification of the social security, and labor issues. pension systems, replacing the ethnically based In PSD, the IDI of the Bank's program is systems that had existed in the FBH; reform of modest at best. The Entity and cantonal privati- the unemployment benefits system and zation agencies remain weak and underfunded, elimination of the waitlist; and the PRSP the Privatization Investment Funds are passive, process, which used participatory approaches and agencies for registration of new businesses and strengthened economic policymaking at and inspections are slow to reform. the State level. There has been substantial IDI in the Bank's In infrastructure, ID was not a key priority in program in the financial sector. The Bank, the immediate post-conflict period--and this along with other donors such as USAID, was entirely appropriate. Seven of the 10 provided significant support to the banking completed projects had only a modest IDI. supervision agencies in both Entities through Nevertheless, even under the emergency its line of credit projects and adjustment operations in the electricity sector, some operations, and both agencies are performing positive results in IDI were achieved early on. their functions satisfactorily. A satisfactory legal The emphasis that the first project placed on and regulatory framework, together with cost recovery, tariff adjustments, and improve- effective supervision agencies, should help ments in revenue collection led to significantly 2 8 O U T C O M E S improved financial performance by EPBiH. This markets are owned by the government, was important, as it signaled to consumers that expressed formally through the PRSP and less they had to be prepared to contribute to the formally in strong indications of support from restoration of a satisfactory power supply. The key ministry officials. In education, there is project also triggered key preparatory studies evidence of substantial ownership of the for power sector restructuring and an program, a program that is consistent with both improved legislative framework for electricity, the new Economic Development Strategy and which were to prove useful in the subsequent the process of EU association. RS funding to phase of sector rehabilitation. The underlying offset the phase-out of IDA funding for the philosophy of the second project was to Education Department's Quality Fund is an promote technical collaboration and then example of this ownership. The Education economic transactions across community lines. Management and Information System and It led, inter alia, to the creation of a coordina- Standards and Assessment Agency are fledgling tion center, jointly owned by the three power institutions that have not yet demonstrated their companies, to facilitate national and interna- sustainability, but their continued operation is tional electricity trading. The later projects, anchored in upcoming IDA projects. In health, particularly those still being implemented, government ownership of the main elements of have much more ambitious institutional the assistance program also appears clear, development objectives and generally seek to particularly since they have been incorporated promote national integration through support into the PRSP. This is especially true of the for economically rational and efficient reforms in primary health care. infrastructure organizations. In infrastructure, prospects for sustainability are mixed. The railways and coal sub-sectors Sustainability face serious financial problems,9 as does the The overall sustainability of the Bank's water supply sector, where progress in cost assistance is rated non-evaluable because of recovery has been poor. Technical operations considerable risks at the country level. At the of water supply systems are satisfactory, but individual project and sectoral levels, most weak finances hamper regular maintenance outcomes are considered sustainable. and urgent repairs of the systems.10 In PSD, the small gains achieved are likely to Beyond the sustainability of specific projects be sustainable. Continued international and sector programs, the sustainability of the pressure, particularly the EU association Bank's program, and all donor assistance, at the process, will strengthen the role of the private country level is considered non-evaluable, sector in the economy. Also, the private sector because it depends primarily on factors not has an inherent resilience; despite adverse directly related to the inherent quality of past conditions, it has grown faster than other interventions. There are still uncertainties sectors of the economy. Progress achieved in regarding the political situation and the the financial sector is also likely to be sustain- capacity of governments to agree on and able. First, a key financial institution, the implement needed reforms, particularly with Central Bank, is independent, and its respect to creating a single economic space and independence is protected by the constitu- transition to a market economy. Aid inflows tional arrangements agreed under the Dayton have fallen significantly since reconstruction, Accords. Second, bank supervision agencies and are going to fall still further, which means and a deposit insurance system have been that BiH policymakers must shift their focus developed and function reasonably well. from aid dependency to internally generated In the social sectors, sustainability of the growth, at the same time that individual achievements in social protection, labor donors, including IDA, with fewer resources at markets, education, and health is rated likely. their command, will have less ability to The key reforms in social protection and labor influence outcomes. In addition, the BiH 2 9 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y governments will have to come to grips with a bated by the establishment of complete free series of unresolved problems, including trade with all BiH's neighbors and with the EU, domestic debt and an unsustainable trade as well as from the eventual end of the currency deficit. This latter problem could be exacer- board arrangement. 3 0 4 Contributions to Outcomes The Bank's Role On balance, IDA operations have been well designed, relevant, and have had satisfactory outcomes. This is commendable, given that the Bank has had to work in a very complex and difficult environment--a fragmented govern- ment structure and the underlying ethnic divisions. However, while the results in terms of physical reconstruction have been impressive, the outcomes in eco- nomic reforms and in transformation to a market economy have been disap- pointing in comparison with the effort and resources expended by the international community. It seem clear that outside pressures, whether however, here the Bank was too easily satisfied from the Peace Implementation Council, OHR, with amendments, without focusing adequately EU, World Bank, IMF, or other agencies, have on the constraints, such as the inadequate court been instrumental in most of the reform system (admittedly the responsibility of the measures adopted. A unique aspect of the BiH OHR and other parties) that prevented situation is that the OHR is prepared and implementation of the law. More attention capable of enacting reform measures, overrid- should have been focused on outcomes. More ing governments that are unprepared to take attention should also have been directed to them. But whether government "ownership" improving tax administration and reducing can be developed through this means, and corruption. Despite the recognition early on whether such measures will be effectively that obstacles to business entry, operations, and implemented, remains in doubt. exit needed to be eliminated to improve the With respect to the basic objective of business environment, only limited progress economic transformation, the Bank was late in has been achieved. addressing some of the impediments to PSD, in In the financial sector, Bank performance particular the enforcement of financial was mixed. While progress was made in reform discipline in SOEs and the closure of insolvent of financial sector institutions and in opening firms. The Bank's focus was limited to improv- commercial banking to private capital, progress ing the bankruptcy legislation in both Entities; in privatization of state-owned banks was 3 1 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y slower, and the Bank sometimes accepted less identify solutions, in the recently approved than full compliance with agreed conditionali- Social Insurance Technical Assistance Project ties. A variety of lending instruments were (FY03). Although it will take years before adopted, including lines of credit, guarantee reforms are fully implemented and their impact operations, adjustment loans, and TA credits. felt, it was probably not possible to address the The guarantee operations were also innovative, larger issues any earlier. and the Bank included TA and training in many In the area of social protection and employ- of its financial sector projects. However, other ment, the Bank has worked effectively with donors and agencies were also significant partners and has made important contribu- actors in the financial sector, including the tions to pension reform, to rationalization of EBRD, IFC, IMF, KfW, and USAID, and the unemployment benefits, and to improvements outcomes cannot be attributed to Bank in labor market regulations. assistance alone. The mixed outcomes of the The Bank has made a major impact in Bank's assistance in financial sector reforms infrastructure. The Bank has addressed critical may be partially the result of the Bank's focus reconstruction needs across all the infrastruc- on the legal requirements of the reforms, or on ture sub-sectors, mobilized large amounts of preparation of plans or laws, rather than on donor co-financing, and closely supervised their implementation. The Bank should have these operations to assure successful outcomes. followed the Enterprise and Bank Privatization However, with respect to the remaining issues Credit, which initiated banking reform, with of developing inter-Entity coordination, operat- stronger conditionality focused on actual ing efficiency and financial viability of key outcomes. infrastructure service providers, there is much In education, the large unfinished agenda outstanding work facing the Bank and other remaining after eight years of assistance raises donors. the question of whether the Bank should have focused earlier on critical policy and structural Other Donors reforms, thus moving BiH further along the It is clear that the donor community as a whole reform path. Discussions with clients and Bank has achieved notable success in contributing to staff working in the education sector suggest the physical reconstruction of BiH. As noted that this would not have been productive. earlier, the volume of aid mobilized for BiH was Divisions within and across governments and almost without precedent in recent post- the initial lack of full "ownership" of reforms conflict situations. All major donor countries meant that there was probably no alternative to were engaged, as well as U.N. organizations, pursuing limited but feasible objectives, while hundreds of NGOs, and private foundations. working to build commitment for more Coordination of this massive support was ambitious reforms. For example, after initial difficult, but the fact that the outcome of the efforts in the early IDA operations to deal with reconstruction effort was so successful must be such ethnically sensitive issues as a uniform credited to the commitment of both the curriculum, a common language for textbooks, donors and the Bosnian people, and also and joint schools, the Bank chose to downplay demonstrates that the flaws in donor coordina- these issues and to withdraw from textbook tion were not fatal. However, as has been the financing, since pushing harder on these issues case for the Bank, the accomplishments of the appeared to inflame ethnic tensions and to be donor community in supporting the transition counterproductive. to a market economy are more mixed. In health, the Bank introduced new Collaboration between the Bank and other approaches, such as primary care based on donors has been substantial across all sectors family medicine teams, and tried to work across of the BiH economy. In health, education, Entity boundaries. More recently, the Bank has social protection and labor markets, infrastruc- begun to address systemic issues and to try to ture, finance, and public sector management, 3 2 C O N T R I B U T I O N S T O O U T C O M E S bilateral donors--including Austria, Canada, and across Entities and in The donor community as Germany, Italy, Japan, Sweden, Switzerland, the setting up some State- a whole has achieved Netherlands, Norway, and the United wide institutions and notable success in Kingdom--co-financed IDA-funded projects, as moving responsibilities to contributing to the well as managing their own programs. Bilateral the State level, but the donors were also important contributors of TA, political situation is still physical reconstruction of on a grant basis, linked to IDA projects. difficult. Even when BiH. Among development partners, the EU has political leaders may wish been one of the major aid contributors and has to implement reforms, governments face powerful also taken a leadership role among donors interest groups--veterans, strong labor unions, (Annex A, table A3a). In the coming years the and political party bosses, as well as criminal EU's influence will increase. At a time when other elements--that can block progress. And BiH donor aid flows, including IDA's, are declining, governments face a dilemma that has confronted the EU can expand its support to finance invest- other transition countries. In a situation of already ments needed to prepare BiH for association high unemployment, governments are extremely with, and possible eventual accession to, the EU. hesitant to downsize the civil service and privatize BiH is currently attempting to meet the or close SOEs, unless the economy is growing conditions set out in the EU Feasibility Study, dynamically and providing new jobs. But the which defines the progress necessary before the prospects for private sector­led growth are country and the EU could begin negotiations for diminished as long as reforms are postponed. an association agreement. Given this predomi- However, there are definite indications that the nant role of the EU, it will be necessary for the governments may play a more positive role in the Bank, with reduced financial resources meaning future, such as the support for the PRSP process reduced scope for conditionality, to attempt to and the policy recommendations that flow from it, align its activities with those of the EU. That this and the commitment of both State and Entity is possible is indicated by the effective collabora- governments to the Action Plan of Priority Reforms tion established by the Bank and EU in other adopted and promulgated by the Coordination transition countries. Board for Economic Recovery and EU Integration in July 2003. The Client In conclusion, the successful reconstruction While the record of the BiH governments in post- effort in BiH can be credited to the joint efforts conflict reconstruction was satisfactory, perform- of the country and the donor community, while ance has been weak in addressing some of the key the lagging reform efforts and the disappoint- economic and social reforms, and particularly in ing economic performance since 2000 must be creating the conditions for dynamic private largely attributed to the reluctance or inability sector­led development. There has been some of the political leadership in BiH to implement progress in recent years on collaboration within effectively the reform agenda. 3 3 5 Recommendations T he BiH case provides important lessons for the Bank on best practice in dealing with post-conflict reconstruction.1 The Bank was prepared to take risks, and the risks paid off. As a result, the Bank was a major contributor to the reconstruction process. Essential for this successful outcome were the close involvement of senior management; strong support from key constituents on the Board; and, perhaps most important, the dedication of Bank staff to helping the people of BiH. This commitment has been widely recognized and appreciated within the country. Although not all operations met their objectives, the overall effort was truly "the Bank at its best." The Bank was overly optimistic regarding the strengthen the privatization agencies. prospects for recovery of the BiH economy. In All Bank investment projects are still being developing the future country strategy, it will be implemented through PMUs.2 While they may essential for the Bank to adopt a more realistic have been essential during reconstruction assessment of both economic growth prospects because of a lack of government capacity, they and the pace of reforms, and to avoid any possibil- can no longer be justified on this basis. They ity of over-commitment of IBRD or IDA resources. should be integrated into the government With respect to the transition process, this structures. This is a recommendation the CAE Country Assistance Evaluation (CAE) finds that the mission heard repeatedly in BiH, and one that Bank could have done more to address problems is endorsed by the government in its commen- of governance, particularly the weak customs tary on the CAE (see Annex D). administration, tax evasion, and smuggling, and In the future, the Bank should align its should now rethink its approach to PSD. Greater country strategy closely with the PRSP to foster attention should be given to imposing hard BiH ownership of the Bank program and the budget constraints on SOEs and removing legal reform efforts the Bank is supporting. With and institutional barriers to privatization--finaliz- more limited resources the Bank will need to ing an acceptable bankruptcy law, reforming work in close collaboration with other agents, commercial courts, resolving the ownership and in particular the IMF and the EU, to present a debt status of strategic enterprises, and helping to common approach on critical reforms. 3 5 ANNEXES ANNEX A: STATISTICAL TABLES AND FIGURES Table A1: Bosnia and Herzegovina at a Glance Table A2a: Bosnia and Herzegovina Economic Indicators, 1994­02 Table A2b: Bosnia and Herzegovina Social Indicators, 1992­02 Figure A1: Life Expectancy Figure A2: Mortality Rate, Infant Figure A3: Fertility Rate, Total Table A3: External Assistance to Bosnia, Total Net ODA Disbursements, 1996­02 Table A3a: Summary of External Assistance to Bosnia, Total Net ODA Disbursements, 1996­02 Table A3b: Average Annual per Capita Official Assistance (Net Disbursements) for Post- Conflict Countries Table A3c: Average Annual per Capita IDA Commitments for Post-Conflict Countries Table A4a: List of Credits Approved for Bosnia-Herzegovina Table A4b: World Bank Commitments including WBTF by Sectors for FY96­03 Table A4c: Economic and Sector Work and CAS List for Bosnia-Herzegovina, 1996­03 Table A5a: OED Ratings, Approval FY96­03 Table A5b: Portfolio at Risk for Active Projects Table A6a: Cost Tables for 1996­03: Bank Budget Table A6b: Cost Tables for 1996­03: Bank Budget and Trust Funds Table A6c: Average Costs of Lending (Bank Budget), Data for 1996­03 Table A6d: Average Costs of Lending (Bank Budget and Trust Funds), Data for 1996­03 Table A7: Bosnia-Herzegovina: Bank's Senior Management, 1995­03 Table A8: Bosnia-Herzegovina Millennium Development Goals Table A9a: Bosnia-Herzegovina: IDA Disbursements and net Transfers, FY97­03 Table A9b: Bosnia-Herzegovina: IBRD Principal Repayments and Interests, FY97­03 3 9 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y T a b l e A . 1 B o s n i a a n d H e r z e g o v i n a a t a G l a n c e Bosnia and Europe and Lower-middle- POVERTY and SOCIAL Herzegovina Central Asia income 2002 Development Diamond* Population, mid-year (millions) 4.1 476 2,411 GNI per capita (Atlas method, US$) 1,270 2,160 1,390 GNI (Atlas method, US$ billions) 5.2 1,030 3,352 Life expectancy Average annual growth, 1996­02 Population (%) 2.5 0.1 1.0 Labor force (%) 2.8 0.4 1.2 GNI Gross Most recent estimate (latest year available, 1996­02) per primary Poverty (% of population below capita enrollment national poverty line) 20 .. .. Urban population (% of total population) 44 63 49 Life expectancy at birth (years) 74 69 69 Infant mortality (per 1,000 live births) 15 25 30 Child malnutrition (% of children under 5) 4 .. 11 Access to improved water source Access to an improved water source (% of population) .. 91 81 Illiteracy (% of population age 15+) .. 3 13 Bosnia and Herzegovina Gross primary enrollment Lower-middle-income group (% of school-age population) 74 102 111 Male 74 103 111 Female 74 101 110 KEY ECONOMIC RATIOS and Economic Ratios* LONG-TERM TRENDS 1982 1992 2001 2002 GDP (US$ billions) .. .. 4.8 5.2 Trade Gross domestic investment/GDP .. .. .. 20.9 Exports of goods and services/GDP .. .. .. 26.9 Gross domestic savings/GDP .. .. .. ­2.8 Gross national savings/GDP .. .. .. 5.7 Domestic Investment Current account balance/GDP .. .. ­19.8 .. Savings Interest payments/GDP .. .. 1.8 1.1 Total debt/GDP .. .. 46.3 51.9 Total debt service/exports .. .. 19.0 9.0 Present value of debt/GDP .. .. 33.1 .. Indebtedness Present value of debt/exports .. .. 101.3 .. 1982­92 1992­02 2001 2002 2002­06 Bosnia and Herzegovina (average annual growth) Lower-middle-income group GDP .. 20.6 4.5 3.9 5.2 GDP per capita .. 18.0 2.4 2.4 4.9 Exports of goods and services .. 27.5 0.8 5.3 5.0 Growth of investment and GDP (%) STRUCTURE of the ECONOMY 1982 1992 2001 2002 400 300 (% of GDP) 200 Agriculture .. .. 14.3 .. 100 Industry .. .. 29.6 .. 0 Manufacturing .. .. .. .. 97 98 99 00 01 02 Services .. .. 56.1 .. GDI GDP Private consumption .. .. .. .. General government consumption .. .. .. .. Imports of goods and services .. .. 52.1 50.6 Growth of exports and imports (%) 1982­92 1992­02 2001 2002 150 (average annual growth) 100 Agriculture .. 8.0 .. .. 50 Industry .. 26.2 .. .. Manufacturing .. 17.0 .. .. 0 Services .. 37.2 .. .. 97 98 99 00 01 02 ­50 Private consumption .. .. .. .. General government consumption .. .. .. .. Exports Imports Gross domestic investment .. 35.6 .. .. Imports of goods and services .. 13.1 ­0.6 ­1.9 Note: 2002 data are preliminary estimates. This table was produced from the Development Economics central database. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 4 0 A N N E X A : S TAT I S T I C A L TA B L E S A N D F I G U R E S PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Domestic prices (% change) Inflation (%) Consumer prices .. .. .. .. 20 Implicit GDP deflator .. .. 4.3 0.0 10 Government finance 0 (% of GDP, includes current grants) 97 98 99 00 01 02 Current revenue .. .. 33.4 37.9 ­10 Current budget balance .. .. ­0.6 0.7 ­20 Overall surplus/deficit .. .. ­7.2 ­8.1 GDP deflator CPI TRADE 1982 1992 2001 2002 (US$ millions) Total exports (fob) .. .. 877 1,070 Export and import levels (US$ mill.) n.a. .. .. .. .. n.a. .. .. .. .. 3,000 Manufactures .. .. .. .. Total imports (cif) .. .. 2,485 2,619 2,000 Food .. .. .. .. Fuel and energy .. .. .. .. 1,000 Capital goods .. .. .. .. Export price index (1995=100) .. .. .. .. 0 96 97 98 99 00 01 02 Import price index (1995=100) .. .. .. .. Terms of trade (1995=100) .. .. .. .. Exports Imports BALANCE of PAYMENTS 1982 1992 2001 2002 (US$ millions) Exports of goods and services .. .. 1,274 1,471 Imports of goods and services .. .. 2,617 2,809 Current account balance to GDP (%) Resource balance .. .. ­1,343 ­1,338 0 96 97 98 99 00 01 02 Net income .. .. 223 252 ­10 Net current transfers .. .. 168 204 ­20 Current account balance .. .. ­952 .. ­30 Financing items (net) .. .. 953 .. Changes in net reserves .. .. ­1 ­38 ­40 Memo: Reserves including gold (US$ millions) .. .. .. .. Conversion rate (DEC, local/US$) .. .. 2.2 2.1 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ millions) Total debt outstanding and disbursed .. .. 2,225 2,725 Composition of 2002 debt (US$ mill.) IBRD .. .. 540 538 IDA .. .. 443 578 G: 283 Total debt service .. .. 299 165 A: 538 IBRD .. .. 36 45 IDA .. .. 3 4 F: 494 Composition of net resource flows Official grants .. .. 431 .. Official creditors .. .. ­109 72 B: 578 Private creditors .. .. 4 6 Foreign direct investment .. .. 222 .. Portfolio equity .. .. 0 .. C: 139 D: 125 World Bank program Commitments .. .. 124 102 A - IBRD E - Bilateral Disbursements .. .. 62 97 B - IDA D - Other multilateral F - Private Principal repayments .. .. 5 23 C - IMF G - Short-term Net flows .. .. 56 74 Interest payments .. .. 34 25 Net transfers .. .. 22 49 Note: This table was produced from the Development Economics central database. 4 1 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y B o s n i a - H e r z e g o v i n a , E c o n o m i c I n d i c a t o r s , T a b l e A . 2 a 1 9 9 4 ­ 0 2 1994 1995 1996 1997 1998 1999 2000 2001 2002 GDP growth (annual %) .. 20.8 85.9 36.6 15.6 9.6 5.6 4.5 3.9 GNI per capita, Atlas method (current US$) .. .. 800 1,020 1,150 1,200 1,280 1,270 1,270 GNI per capita, PPP (current international $) 1,330 1,760 3,200 4,220 4,700 5,110 5,450 5,620 5,800 Agriculture, value added (% of GDP) 35.85 24.64 20.51 16.90 14.85 13.32 11.71 14.29 .. Industry, value added (% of GDP) 25.86 26.96 25.72 25.30 25.96 24.40 24.87 29.65 .. Services, etc., value added (% of GDP) 38.29 48.41 53.77 57.80 59.20 62.27 63.42 56.07 .. Exports of goods and services (% of GDP) 15.45 20.41 24.01 28.41 29.33 25.59 25.96 .. 26.87 Imports of goods and services (% of GDP) 86.40 71.47 83.11 73.89 66.11 58.14 55.39 52.12 50.64 Private capital flows, total (% of GDP) 0 0 0 0 2.33 1.92 3.29 4.17 5.33 Current account balance (% of GDP) ­14.10 ­10.34 ­27.29 ­30.06 ­18.37 ­20.69 ­19.95 ­19.83 ­16.81 Total debt service (% of exports of goods and services) .. .. .. .. .. 10.98 19.22 19.08 .. Gross international reserves in months of imports .. .. .. .. .. .. 2.1 5.0 4.7 Gross domestic savings (% of GDP) .. ­31.07 ­17.21 ­4.19 ­0.92 ­12.58 .. .. ­2.84 Inflation, consumer prices (annual %) .. .. .. .. -0.3 3.4 5.1 3.1 0.3 Current public revenue, excluding grants (% of GDP) .. .. 51.9 39.9 46.3 47.7 46.8 44.4 46.5 Public expenditure, total (% of GDP) .. .. 56.5 62.4 54.9 59.8 57.3 .. .. Overall budget balance, including grants (% of GDP) .. .. .. .. .. .. ­10.0 ­5.8 ­4.3 Note: GNI = gross national income; PPP = purchasing power parity. Source: World Bank database as of December 9, 2003 and IMF statistics. 4 2 A N N E X A : S TAT I S T I C A L TA B L E S A N D F I G U R E S .. .. 0.9 2.1 49.4 84.3 69.4 30.4 36.6 2000­02 ,410.72 .. .. income countries 1.3 2.3 Low-middle- 43.0 86.7 68.1 40.6 1992 111.5 2,172.5 .. 2.0 0.5 1.8 59.5 98.9 90.0 73.4 22.0 26.0 2000­02 .. .. 1.9 0.4 2.2 Macedonia 1992 58.6 97.1 72.0 30.6 32.3 1992­02 .. .. 5.2 1.1 29 56.8 95.5 86.0 73.4 24.0 2000­02 Georgia .. .. 5.4 1992 -0.3 1.8 55.5 86.5 58.0 72.6 24.0 .. .. 0.1 1.7 10.7 51.9 93.0 72.7 17.0 19.0 Indicators, 2000­02 Serbia- .. .. 0.3 1.9 Montenegro 1992 10.5 51.1 72.7 71.4 21.7 24.6 .. .. .. 4.4 Social -0.2 1.5 0.7 0.8 58.6 73.8 2000­02 Croatia .. 4.8 0.0 1.5 1992 54.7 85.6 83.0 71.2 11.6 14.0 .. 3.2 1.0 2.2 43.6 97.0 74.0 23.0 25.0 2000­02 107.0 Albania .. .. 1992 3.3 -0.6 2.9 LSMS. 37.3 99.9 94.0 71.3 34.2 Herzegovina, 2001 .. 4.1 0.9 91 7.6 18 43.9 92.8 73.9 1.60 2000­02a Herzegovina and and .. .. 1995 3.4 3.4 55 14 19 40.9 72.7 1.60 Bosnia and Bosnia-Herzegovina .. .. .. 1992 4.1 0.5 58 7.4 2003, 39.9 72.2 1.60 9, Bosnia %) 1,000 December children 1,000 total of of (per as net) (per -5 (annual primary primary (% (% birth, (births A.2b at DPT infant under database total total growth months) Bank rate, rate, population enrollment, enrollment, 12 rate, figure. orld able net) gross) woman) births) births) expectancy W: T (% (% under (years) per live live Latest Population, Population Urban School School Immunization, Life Fertility Mortality Mortality a. Source 4 3 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y F i g u r e A . 1 L i f e E x p e c t a n c y Age 75 74 73 72 71 70 69 68 67 66 65 Bosnia and Comparator countries Lower-middle-income Herzegovina countries 1992 2000­02 F i g u r e A . 2 M o r t a l i t y R a t e , I n f a n t Per 1,000 live births 45 40 35 30 25 20 15 10 5 0 Bosnia and Comparator Lower-middle-income Herzegovina countries countries 1992 2000­02 4 4 A N N E X A : S TAT I S T I C A L TA B L E S A N D F I G U R E S F i g u r e A . 3 F e r t i l i t y R a t e , T o t a l Births per woman 2.5 2 1.5 1 0.5 0 Bosnia and Comparator Lower-middle-income Herzegovina countries countries 1992 2000­02 4 5 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y E x t e r n a l A s s i s t a n c e t o B o s n i a , T o t a l T a b l e A . 3 N e t O D A D i s b u r s e m e n t s , 1 9 9 6 ­ 0 2 , i n U S $ m i l l i o n Donor 1996 1997 1998 1999 2000 2001 2002 Total Austria 96.8 44.9 38.5 28.5 22.5 14.2 10.9 256.3 Belgium 2.6 4.3 4.0 5.7 1.3 6.0 1.9 25.8 Canada - 8.2 12.3 14.3 5.5 10.6 6.9 57.8 Denmark - 4.0 2.5 2.1 2.7 7.9 0.4 19.6 Finland 15.0 8.8 8.9 8.1 4.3 4.8 4.7 54.6 France 7.2 5.0 5.1 115.7 19.9 2.1 2.4 157.4 Germany 39.9 33.0 43.7 65.0 91.5 27.0 19.4 319.5 Greece 7.2 10.4 22.2 2.0 6.3 8.8 5.7 62.6 Ireland 5.9 2.3 0.2 0.2 2.2 1.5 1.6 13.9 Italy 67.4 7.8 16.7 6.0 33.0 5.0 6.4 142.3 Japan 25.0 34.2 57.3 36.4 24.4 9.6 14.7 201.6 Luxembourg 0.9 1.4 1.4 1.2 0.9 0.6 0.3 6.7 Netherlands 88.3 84.1 77.2 77.0 43.3 52.9 37.3 460.1 Norway 46.8 40.8 27.9 31.6 30.8 16.9 23.8 218.6 Portugal - 0.1 1.0 0.9 1.1 0.9 2.2 6.2 Spain 12.2 6.1 22.9 30.3 34.8 25.2 27.8 159.3 Sweden 30.1 31.2 24.6 30.4 23.9 29.0 27.0 196.2 Switzerland 19.9 7.1 12.9 18.0 11.2 12.5 15.8 97.4 United Kingdom 0.6 1.8 3.4 6.9 7.1 6.1 7.3 33.2 United States 135.0 185.0 216.4 218.9 85.8 135.1 75.8 1,052.0 Total bilateral 601.0 520.5 599.1 699.2 452.2 376.7 292.3 3,541.0 EBRD 0.7 2.0 3.9 2.5 0.5 1.9 1.7 13.2 EC 64.8 216.8 133.5 239.4 196.1 154.3 153.1 1,158.0 IDA 109.6 65.2 134.9 68.0 44.1 61.7 96.8 580.3 IFAD 6.0 0.3 3.8 7.5 2.3 - 1.1 21.0 OTHER U.N. 8.2 0.5 - - 0.2 0.3 0.0 9.2 UNDP 3.6 4.8 5.0 5.3 -2.3 0.2 1.1 17.7 UNFPA 0.4 0.2 0.2 0.3 0.1 0.1 0.1 1.4 UNHCR - - - - 24.1 22.3 19.7 66.1 UNICEF 11.5 1.6 2.4 1.6 0.9 0.4 0.5 18.9 UNTA 0.6 0.5 0.9 0.6 0.3 0.9 0.4 4.2 Arab agencies 1.0 - 0.1 0.1 - 0.1 0.0 1.3 Total multilateral 206.3 291.8 284.5 325.2 266.4 242.1 274.5 1,890.8 EC + EU members 439.0 462.0 405.7 619.5 490.7 346.4 308.5 3,071.8 Other donors 37.5 49.6 21.6 15.9 18.5 20.3 20.5 183.9 TOTAL DONORS 844.8 861.9 905.2 1,040.3 737.1 639.2 587.4 5,615.9 Source: Geographical Distribution of Financial Flows to Aid Recipients, OECD, CD 2003. 4 6 A N N E X A : S TAT I S T I C A L TA B L E S A N D F I G U R E S S u m m a r y o f E x t e r n a l A s s i s t a n c e t o B o s n i a , T a b l e A . 3 a T o t a l N e t O D A D i s b u r s e m e n t s , 1 9 9 6 ­ 0 2 , i n U S $ m i l l i o n 1996 1997 1998 1999 2000 2001 2002 Total Total donors 844.8 861.9 905.2 1040.3 737.1 639.2 587.0 5,615.5 Total bilateral 601.0 520.5 599.1 699.2 452.2 376.7 292.0 3,540.6 Total multilateral 206.3 291.8 284.5 325.2 266.4 242.1 274.5 1,890.9 o/w IDA 109.6 65.2 134.9 68.0 44.1 61.7 96.8 580.3 IDA as % of total donors 13 8 15 7 6 10 16 10 Source: Geographical Distribution of Financial Flows to Aid Recipients, OECD, CD 2003. A v e r a g e A n n u a l p e r C a p i t a O f f i c i a l T a b l e A . 3 b A s s i s t a n c e ( N e t D i s b u r s e m e n t s ) f o r P o s t - C o n f l i c t C o u n t r i e s Total cumulative Average population, Per capita annual Country name and years amount, US$ million million average, US$ Timor Leste (1999­02) 800.3 0.8 264.0 Bosnia and Herzegovina (1996­99) 3,652.2 3.7 246.3 West Bank and Gaza (1994­97) 2,111.5 2.5 214.5 Rwanda (1994­97)* 2,114.6 5.9 89.0 Eritrea (1994­97) 589.0 3.6 40.6 Cambodia (1992­95) 1,394.1 10.2 34.1 a. Underestimate, because considerable assistance channeled to refugees outside Rwanda. Note: Figures are from OECD DAC database and are considerably higher than World Bank and IMF data. Source: OECD and SIMA. A v e r a g e A n n u a l P e r C a p i t a I D A T a b l e A . 3 c C o m m i t m e n t s f o r P o s t - C o n f l i c t C o u n t r i e s Total cumulative Average population, Per capita annual Country name and fiscal years amount (US$ million) million average (US$) Bosnia and Herzegovina (1996­99) 697.6 3.7 47.0 Timor Leste (2000­03) 107.3 0.8 35.4 West Bank and Gaza (1994­97) 193.5 2.5 19.7 Rwanda (1994­97) 127.0 5.9 5.3 Eritrea (1994­97) 48.8 3.6 3.4 Cambodia (1992­95) 99.7 10.2 2.4 Source: World Bank data as of February 5, 2004, and SIMA. 4 7 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y L i s t o f C r e d i t s A p p r o v e d T a b l e A . 4 a f o r B o s n i a - H e r z e g o v i n a Commitment Project Approval FY amount ( US$ M) Status Emergency Recovery 1996 45.0 Closed Emergency Farm Reconstruction 1996 20.0 Closed Emergency Water Supply 1996 20.0 Closed Emergency Transport Reconstruction 1996 35.0 Closed Emergency War Victims 1996 10.0 Closed Emergency Education Reconstruction 1996 10.0 Closed Emergency District Heating (incl. 24026) 1996 20.0 Closed Emergency Landmine Clearance 1997 7.5 Closed Emergency Housing Repair 1997 15.0 Closed Emergency Power Rehabilitation 1997 34.4 Closed Demobilization Support and Reintegration 1997 7.5 Closed Public Works and Employment 1997 10.0 Closed Transition Assistance Credit 1997 90.0 Closed Emergency Industry Re-Start Guarantee 1997 10.0 Closed Microenterprise/Local Inititatives 1997 7.0 Closed Essential Hospital Services 1997 15.0 Closed Transport Reconstruction II 1998 39.0 Closed Education Reconstruction II 1998 11.0 Closed Emergency Natural Gas 1998 10.0 Closed Reconstruction Assistance Project (RS) 1998 17.0 Closed Forestry 1998 7.0 Closed Emergency Pilot Credit (RS) 1998 5.0 Closed Power II 1998 25.0 Closed Public Finance I (Structural Adjustment) 1998 63.0 Closed Local Development Project 1999 15.0 Open Basic Health Project 1999 10.0 Open Enterprise & Bank Privatization Credit 1999 50.0 Closed Enterprise Export Facility Project 1999 12.0 Closed Pilot Cultural Heritage Project (LIL) 1999 4.0 Open Public Finance II (Structural Adjustment) 1999 72.0 Closed Education Development Project III 2000 10.6 Open Mostar Water and Sanitation 2000 12.0 Open Emergency Labor Redeployment Project 2000 15.0 Open Trade and Transport Facility in SEE 2001 11.0 Open Social Sector SAC (SOSAC I) 2001 20.0 Closed Social Sector Technical Assistance (SOTAC) 2001 3.6 Open Local Initiative II 2001 20.0 Open Electric Power 3 2001 35.0 Open Community Development 2001 15.0 Open Privatization TA 2001 19.8 Open Private Sector Credit 2002 10.0 Open Road Management Safety 2002 30.0 Open Business Environment Enabling Credit 2002 44.0 Open Solid Waste Management 2002 18.0 Open Small Scale Comm. Agric. 2003 12.0 Open Forest Dvlp. & Conservation TA 2003 3.7 Open Social Insurance TA (SITAP) 2003 7.0 Open Total 983.1 4 8 A N N E X A : S TAT I S T I C A L TA B L E S A N D F I G U R E S W o r l d B a n k C o m m i t m e n t s I n c l u d i n g W B T F T a b l e A . 4 b b y S e c t o r s f o r F Y 9 6 ­ 0 3 , U S $ m i l l i o n Sector group 1996 1997 1998 1999 2000 2001 2002 2003 Total % Economic policy 90 90 9.1 Education 10 11 10.6 31.6 3.2 Energy and mining 20 35.6 35 35.0 125.6 12.8 Environment 18.0 18 1.8 Financial sector 5 50 20.0 10.0 85 8.6 Health, nutrition and population 10 15 10 7.0 42 4.3 Private sector development 45 10 12 19.8 44.0 130.8 13.3 Public sector governance 63 72 135 13.7 Rural sector 20 7 15.7 42.7 4.3 Social protection 24.5 15 38.6 78.1 7.9 Transport 35 7.5 39 11.0 30.0 122.5 12.4 Urban development 15 17 19 51 5.2 Water supply and sanitation 20 12 32 3.3 Total 160 197.6 177 163 37.6 124.3 102 22.7 984.3 100 Source: World Bank data as of December 9, 2003. 4 9 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y E c o n o m i c a n d S e c t o r W o r k a n d C A S L i s t T a b l e A . 4 c f o r B o s n i a - H e r z e g o v i n a , 1 9 8 0 ­ 0 3 Report Title Date Economic and Sector Reports Economic Issues and Priorities FY96 Priorities for Recovery and Growth FY96 Toward Economic Recovery (CEM) FY96 From Recovery to Sustainable Growth (CEM) FY97 The Priority Reconstruction Program: From Emergency to Sustainability FY97 Vol I- An Overview of Progress and Challenges for 1997 Vol II- The Economic Vision and Near Term Tasks Towards Sustainable Recovery and Growth Vol III- Reconstruction Sector Reports Implementation of the Priority Reconstruction Program in 1996 FY97 Vol I- Status Report to the Donor Community Vol II- 1996 Achievements and 1997 Objectives New Foundations. Private Sector Development in Post-War Bosnia and Herzegovina FY97 Reconstruction Assessment FY99 Public Expenditure Review, Vol. 1 and 2 FY98 Oil Import Review FY00 Poverty and Income Vulnerability Note FY00 Anti-Corruption Diagnosis and Strategy FY01 FIAS Barriers to Investment Study FY01 Country Procurement Assessment Report FY02 Creditworthiness Review FY02 Labor Market Study and TA FY02 Public Expenditure and Institutional Review FY02 Local Level Institutions Study FY02 Country Financial Accountability Assessment FY03 Local Government Finance Study FY03 Local Level Institutions and Social Capital Study FY03 Poverty Assessment FY03 CAS Documents Bosnia and Herzegovina - Country Assistance Strategy FY98 Bosnia and Herzegovina - Country Assistance Strategy Progress Report FY99 Bosnia and Herzegovina - Country Assistance Strategy FY00 Bosnia and Herzegovina - Country Assistance Strategy Progress Report FY02 Bosnia and Herzegovina - Country Assistance Strategy Progress Report FY03 Other Non-Lending Activities Donors Conferences (December 1995, April 1996, July 1997) Priority Reconstruction Procurement Bulletin (periodic) Implementation of the Priority Reconstruction Program: Status Report to the Donor Community (quarterly) Sectoral Project and Financing Needs (periodic) EDI Seminars on Project Implementation (Fall 1996) and Private Sector Development (March 1997) Priorities for Recovery and Growth, Discussion Paper #1 FY96 Priorities for Recovery and Growth: Sectoral Annexes, Discussion Paper #2 FY96 Priority Needs for the First Quarter of 1996, Discussion Paper #3 FY96 Labor Legislation TA FY00 Economic Development Strategy TA FY01 Household Survey (LSMS) TA FY02 IDF Grant- Statistics FY02 IDF- Treasury FY02 Reconstruction and Development Program in Bosnia and Herzegovina: Progress Update FY02 IDF- Environmental Action Plan FY03 Labor Market in Postwar Bosnia and Herzegovina - How to Encourage Businesses to Create Jobs and Increase Worker Mobility FY03 Trade Policies and Institutions in the Countries of South Eastern Europe in the EU Stabilization and Association Process FY03 Source: World Bank Imagebank database and CASs and CAS Progress Reports. 5 0 A N N E X A : S TAT I S T I C A L TA B L E S A N D F I G U R E S T a b l e A . 5 a O E D R a t i n g s , A p p r o v a l F Y 9 6 ­ 0 3 Outcome (no.) IDI (no.) Sustainability (no.) Total Total o/w % % evaluated evaluated Adjustment % Sat. % Substan. % Likely Country (no.) ($m) ($m) % Sat. adj Substan. adj. Likely adj. Bankwide 598 59,332 46,066 79 80 51 47 75 77 ECA 198 13,804 11,606 81 81 53 57 83 86 Bosnia-Herzegovina 26 506 293 96 100 38 80 84 80 Albania 10 184 120 80 100 60 75 80 75 Croatia 6 209 83 100 100 67 100 83 100 Georgia 12 311 203 75 25 58 25 91 75 Macedonia 11 216 84 73 100 50 50 78 50 Serbia and Montenegro 2 159 159 100 100 50 50 100 100 Source: World Bank data as of April 20, 2004. T a b l e A . 5 b P o r t f o l i o a t R i s k f o r A c t i v e P r o j e c t s Projects Commitment Country No. of projects Net commitment ($m) at risk (%) at risk (%) Bankwide 1,400 94,359 18 17 Eastern Europe and Central Asia Region 282 13,616 11 13 Bosnia-Herzegovina 19 296 0 0 Albania 21 286 5 4 Croatia 11 448 0 0 Georgia 16 297 19 21 Macedonia 9 156 22 40 Serbia and Montenegro 11 249 0 0 Source: World Bank data, December 17, 2003. 5 1 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y T a b l e A . 6 a C o s t T a b l e s f o r 1 9 9 6 ­ 0 3 : B a n k B u d g e t FY 96­99 FY 00­03 Total Total US$m % US$m % US$m % Bosnia-Herzegovina Lending 7.2 54 5.2 27.9 12.4 38.7 Supervision 4.4 33 8.3 44.5 12.7 39.7 ESW 1.1 8 2.4 12.9 3.5 10.9 Other 0.7 5 2.7 14.7 3.4 10.7 Total 13.5 100 18.6 100.0 32.0 100.0 ECA FY96­03 Lending 235.0 33.8 Supervision 231.1 33.2 ESW 122.7 17.6 Other 107.4 15.4 Total 696.1 100.0 Bank Lending 1,014.4 26.3 Supervision 1,244.4 32.3 ESW 614.6 16.0 Other 976.9 25.4 Total 3,850.3 100.0 5 2 A N N E X A : S TAT I S T I C A L TA B L E S A N D F I G U R E S C o s t T a b l e s f o r 1 9 9 6 ­ 0 3 : B a n k B u d g e t a n d T a b l e A . 6 b T r u s t F u n d s FY 96­99 FY 00­03 Total Total US$m % US$m % US$m % Bosnia-Herzegovina Lending 14.4 60 8.0 32.0 22.4 45.6 Supervision 6.6 28.0 11.3 45.0 17.9 36.5 ESW 1.6 7.0 2.5 10.0 4.1 8.3 Other 1.2 5.0 3.1 12.0 4.3 8.7 Total 23.8 100 24.8 100 48.6 99.1 ECA FY96­03 Lending 351.5 37.8 Supervision 274.5 29.5 ESW 141.7 15.3 Other 161.7 17.4 Total 929.3 100.0 Bank Lending 2,566.2 36.6 Supervision 1,533.2 21.8 ESW 967.2 13.8 Other 1,951.2 27.8 Total 7,017.8 100.0 Note: Composition of BiH ECA Bank other costs (%) FY 96­99 FY 00­03 FY 96­99 FY 00­03 FY 96­99 FY 00­03 Other % % % % % % Technical assistance 32.6 35.2 45.5 33.8 45.2 37.2 Country program support 19.2 54.7 14.3 53.6 31.2 42.7 Client training 48.2 10.1 40.2 12.5 23.7 20.0 Source: Bank data as of December 12, 2003. 5 3 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y , , size 20 71 85 size $m 20 71 85 Memo: verageA $m Memo: verageA project project net for 1996­03 and net for of and costs of projects Funds), costs 40 32 31 projects 61 43 56 $1,000 $1,000 for verageA per $ commitment satisfactory nonrisky verageA per rust $ commitment satisfactory nonrisky T Data costs 38 21 23 costs $1,000 net 58 28 42 $1,000 net of and per of verageA $ per commitment verageA $ commitment cost cost Budget), project, $1,000 763 Budget project, 1,469 1,949 $1,000 verageA 1,157 1,961 3,552 per verageA per (Bank $m (Bank $m 795 nonrisky 795 commitment satisfactory 21,561 nonrisky 125,188 commitment satisfactory 21,561 and projects, 125,188 Net for and projects, Net for Lending Lending $m 834 $m 834 of commitment, 33,721 168,873 of commitment, 33,721 168,873 Net Net Costs 1996­03 42 Costs 474 42 projects Number 1,976 474 projects of Number 1,976 of for verage cost, 32 $m 696 cost, 2003. verage 49 A otalT 3,850 $m 929 2003. 7,018 18, A Data otalT 18, December December of of as as A.6c data A.6d data Bank Bank orld orld able W: able W: T T Region/country Bosnia-Herzegovina ECA Bank Source Region/country Bosnia-Herzegovina ECA Bank Source 5 4 A N N E X A : S TAT I S T I C A L TA B L E S A N D F I G U R E S B o s n i a - H e r z e g o v i n a : B a n k ' s S e n i o r T a b l e A . 7 M a n a g e m e n t , 1 9 9 5 ­ 0 3 Year Vice president Country director Chief/resident representative 1995 Wilfried Thalwitz Kemal Dervis 1996 Johannes F. Linn Christine Wallich Rory O'Sullivan 1997 Johannes F. Linn Christine Wallich/Christian Poortman Rory O'Sullivan 1998 Johannes F. Linn Christian Poortman Rory O'Sullivan 1999 Johannes F. Linn Christian Poortman Rory O'Sullivan 2000 Johannes F. Linn Christian Poortman Joseph K. Ingram 2001 Johannes F. Linn Christian Poortman Joseph K. Ingram 2002 Johannes F. Linn Christian Poortman Joseph K. Ingram 2003 Johannes F. Linn Orsalia Kalantzopoulos Dirk Reinermann Source: The World Bank Group Directory, 1995­03. B o s n i a - H e r z e g o v i n a : M i l l e n i u m T a b l e A . 8 D e v e l o p m e n t G o a l s 1990 1995 2001 2002 1 Eradicate extreme poverty and hunger 2015 target = halve 1990 $1 a day poverty and malnutrition rates Population below $1 a day (%) .. .. .. .. Poverty gap at $1 a day (%) .. .. .. .. Percentage share of income or consumption held by poorest 20% .. .. .. .. Prevalence of child malnutrition (% of children under 5) .. .. 4 .. Population below minimum level of dietary energy consumption (%) .. .. .. .. 2 Achieve universal primary education 2015 target = net enrollment to 100 Net primary enrollment ratio (% of relevant age group) .. .. .. .. Percentage of cohort reaching grade 5 (%) .. .. .. .. Youth literacy rate (% ages 15-24) .. .. .. .. 3 Promote gender equality 2005 target = education ratio to 100 Ratio of girls to boys in primary and secondary education (%) .. .. .. .. Ratio of young literate females to males (% ages 15-24) .. .. .. .. Share of women employed in the nonagricultural sector (%) .. .. .. .. Proportion of seats held by women in national parliament (%) .. .. 29 7 4 Reduce child mortality 2015 target = reduce 1990 under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 22 19 18 .. Infant mortality rate (per 1,000 live births) 18 16 15 .. Immunization, measles (% of children under 12 months) 52 53 92 .. 5 Improve maternal health 2015 target = reduce 1990 maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) .. 15 .. .. Births attended by skilled health staff (% of total) 97.4 .. 99.6 .. (Table continues on the following page.) 5 5 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y B o s n i a - H e r z e g o v i n a : M i l l e n i u m T a b l e A . 8 D e v e l o p m e n t G o a l s ( c o n t i n u e d ) 1990 1995 2001 2002 6 Combat HIV/AIDS, malaria and other diseases 2015 target = halt, and begin to reverse, AIDS, etc. Prevalence of HIV, female (% ages 15-24) .. .. .. .. Contraceptive prevalence rate (% of women ages 15-49) .. .. .. .. Number of children orphaned by HIV/AIDS .. .. .. .. Incidence of tuberculosis (per 100,000 people) .. .. 90.5 .. Tuberculosis cases detected under DOTS (%) .. .. 47 .. 7 Ensure environmental sustainability 2015 target = various (see notes) Forest area (% of total land area) 44.6 .. 44.6 .. Nationally protected areas (% of total land area) .. 0.4 0.5 0.5 GDP per unit of energy use (PPP $ per kg oil equivalent) .. 4.5 4.7 .. CO2 emissions (metric tons per capita) 1.1 1.2 1.2 .. Access to an improved water source (% of population) .. .. .. .. Access to improved sanitation (% of population) .. .. .. .. Access to secure tenure (% of population) .. .. .. .. 8 Develop a Global Partnership for Development 2015 target = various (see notes) Youth unemployment rate (% of total labor force ages 15-24) .. .. .. .. Fixed line and mobile telephones (per 1,000 people) .. 70.6 168 .. Personal computers (per 1,000 people) .. .. .. .. General indicators Population 4.5 million 3.4 million 4.1 million 4.1 million Gross national income (GNI) ($) .. 2.8 billion 5.1 billion 5.2 billion GNI per capita ($) .. 800 1,270.00 1,270.00 Adult literacy rate (% of people ages 15 and over) .. .. .. .. Total fertility rate (births per woman) 1.7 1.6 1.6 1.6 Life expectancy at birth (years) 71.4 72.7 73.6 73.9 Aid (% of GNI) .. 57.4 12.7 .. External debt (% of GNI) .. .. 44.1 .. Investment (% of GDP) .. 20 20 20.9 Trade (% of GDP) .. 91.9 81.3 77.5 Note: In some cases the data are for earlier or later years than those stated. Goal 1 targets: Halve, between 1990 and 2015, the proportion of people whose income is less than one dollar a day. Halve, between 1990 and 2015, the proportion of people who suffer from hunger. Goal 2 target: Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling. Goal 3 target: Eliminate gender disparity in primary and secondary education, preferably by 2005, and to all levels of education no later than 2015. Goal 4 target: Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate. Goal 5 target: Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio. Goal 6 targets: Have halted by 2015, and begun to reverse, the spread of HIV/AIDS. Have halted by 2015, and begun to reverse, the incidence of malaria and other major diseases. Goal 7 targets: Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources. Halve, by 2015, the proportion of people without sustainable access to safe drinking water. By 2020, to have achieved a significant improvement in the lives of at least 100 million slum dwellers. Goal 8 targets: Develop further an open, rule-based, predictable, non-discriminatory trading and financial system. Address the Special Needs of the Least Developed Countries. Address the Special Needs of landlocked countries and small island developing states. Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term. In cooperation with developing countries, develop and implement strategies for decent and productive work for youth. In co- operation with pharmaceutical companies, provide access to affordable, essential drugs in developing countries. In cooperation with the private sector, make available the benefits of new technologies, especially information and communications. Source: World Development Indicators database, April 2002. 5 6 A N N E X A : S TAT I S T I C A L TA B L E S A N D F I G U R E S B o s n i a - H e r z e g o v i n a : I D A D i s b u r s e m e n t s a n d N e t T r a n s f e r s ( I n c l u d i n g B i l l a b l e T r u s t T a b l e A . 9 a F u n d s ) , F Y 9 7 ­ 0 3 ( m i l l i o n s o f U S $ a s o f F e b r u a r y 2 , 2 0 0 4 ) Fiscal year Gross disbursements Net disbursementsa Net transfersb 1996 68.2 68.2 68.2 1997 175.3 175.3 174.4 1998 87.9 87.9 86.1 1999 117.4 117.4 114.7 2000 80.8 80.8 77.1 2001 69.7 69.7 65.8 2002 43.4 43.4 39.2 2003 82.3 82.3 77.2 Total 725.1 725.1 702.7 a. Net disbursements are gross disbursements minus principal repayments. b. Net transfers are net disbursements minus interest and fees . Source: World Bank data. B o s n i a - H e r z e g o v i n a : I B R D P r i n c i p a l T a b l e A . 9 b R e p a y m e n t s a n d I n t e r e s t , F Y 9 7 ­ 0 3 ( m i l l i o n s o f U S $ a s o f F e b r u a r y 2 , 2 0 0 4 ) Fiscal year Principal repayments Interest Total 1997 0 30.0 30.0 1998 0 35.5 35.5 1999 0 34.9 34.9 2000 0 32.6 32.6 2001 0 33.4 33.4 2002 16.7 26.2 42.9 2003 23.8 18.8 42.6 Total 40.5 211.5 251.9 Source: World Bank data. 5 7 ANNEX B: LIST OF PEOPLE INTERVIEWED Government and Former Government Mr. Enver Trepic, Deputy Minister of Finance, Officials Federation of BiH Ms. Azra Hadziahmetovic, Former Minister of Ms. Sefika Hafizovic, Advisor to Prime Minister Foreign Trade & Economic Relations of Federation of BiH Mr. Mirsad Kurtovic, Former Minister of Foreign H.E. Mladen Ivanic, Minister of Foreign Affairs, BiH Trade & Economic Relations Mr. Pero Bosnic. Former Assistant Minister of Mr. Amir Hadziomeragic, Head of Statistics Sec- Finance, Federation of BiH tion, Central Bank H.E. Tomo Lucic, Minister of Health, Federation Ms. Ljiljana Marjanovic, Banking Supervision Co- of BiH ordinator, Central Bank Dr. Goran Cerkez, Assistant Minister of Health, Ms. Snezana Janjic, Economist, Research & De- Federation of BiH velopment Section, Central Bank Ms. Lamija Kozaric-Rahman, General Manager, In- H.E. Marin Kvarternik, Minister of Health and So- vestment Guarantee Agency cial Welfare, RS Mr. Kerim Karabdic, PMU Director, Education, Dr. Gordan Jelic, Director, Health PMU, RS Federation of BiH Mr. Zarko Mionic, Assistant Minister of Finance, RS Mr. Stevan Stevic, Head, Education Standards & H.E. Gojko Savanovic, Minister of Education and Assessment Agency Culture, RS Mr. Zlatko Hurtic, PRSP Coordinator, Ministry Mr.ZdravkoMarjanovic,Director,EducationPMU,RS of Foreign Trade, BiH Mr. Srecko Bogunovic, Executive Director, RS Mr. Munever Imamovic, Former PMU Director Development & Employment Foundation Dr. Ibrahim Ramic, General Manager, Health Mr. Ranko Labovic, Former Director., RS Re- PMU, Federation of BiH construction Assistance Project, PMU Mr. Resad Zutic, Director, Federation Privatiza- Mr. Rajko Klickovic, Ministry of Labor and Vet- tion Agency erans Affairs, RS Mr. Zlatko Bars, Director, Federation Banking Agency Mr. Radomir Graonic, Ministry of Labor and Vet- Mr. Marko Pejcinovic, Former Assistant Minister erans Affairs, RS of Social Affairs Mr. Milorad Dodik, Former Prime Minister, RS Mr. Amrudin Nurak, Deputy Direector, Pilot Mr. Omer Brankovic, Deputy Prime Minister, RS Emergency Labor Redeployment Project Mr. Branislav Zugic, Secretary, Ministry for Eco- Ms. Kasema Catovic, Assistant Minister, Federa- nomic Relations and Secretary Coordination, RS tion Ministry of Energy, Mining & Industry Ms. Gordana Prastalo, Ministry of Finance, RS Mr. Mirsad Niksic, Assistant Minister, Federation H. E. Ljerka Maric, Minister of Finance, BiH Ministry of Energy, Mining & Industry Mr. Miroljub Krunic, Assistant Minister of Fi- Mr. Mile Srdanovic, Assistant Minister, Federation nance, BiH Ministry of Energy, Mining & Industry Ms. Bejita Delic, Ministry of Finance, BiH Ms. Vera Letica, Ministry of Finance, BiH Private Sector H.E. Ahmet Hadzipasic, Prime Minister, Federa- Mr. Slobodan Pesic, Manager, Vitaminka (Banja tion of BiH Luka) 5 9 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y Mr. Dragan Damjanovic, Executive Director, VS Ms. Irina Smirnov, Research Analyst Bank (Banja Luka) Mr. Steve Dimitriyev, Consultant Ms. Ljiljana Panic, Internal Auditor, VS Bank Mr. Tarik Sahovic, Consultant (Banja Luka) Ms. Vesna Francic, Disbursement Officer Mr. Mirko Risovic, CEO, Tropic Ribarstvo (Banja Andras Horvai, Country Program Coordinator Luka) Siew Chai Ting, Lead Financial Management Mr. Damir Miljevic, Employers' Association, RS Specialist Mr. Aleksandar Kremenovic, Director, Micro-Fin, Christiaan Poortman, Former Country Director Banja Luka for BiH Ms. Amina Kurbegovic, Financial Manager, Akova Martin Slough, Senior Financial Specialist Impex (Sarajevo) Michael Koch, Lead Financial Officer Mr. Asim Omanic, Director, Federation Invest- Orsalia Kalantzopoulos, Country Director for BiH ment Bank (Sarajevo) Roger Robinson, Country Manager (Armenia) Neil Simon Gray, Lead Country Officer International Organizations/Donor Sonya Brajovic-Bratanovic, Lead Financial Sector Agencies Specialist Mr. Serban Ghinescu, Head of Office, EBRD Saumya Mitra, Lead Economist Mr. Wulf Goretzsky, Program Manager, GTZ Ulrich Hewer, Senior Economist Mr. Seid Turkovic, UNDP Christine Wallich, Former Country Director, BiH Mr. John Ging, OSCE Egbert Gerken, Consultant Mr. Alexander Paine, General Manager, SEED Johannes Linn, Former Vice President, ECA Mr. Merritt Broady, Office Director, USAID Joseph Ingram, Former Country Manager, BiH Mr. Peter Flynn, Senior Program Coordinator, Vladimir Kreacic, Lead Technical Specialist USAID Rory O'Sullivan, Former Resident Representative Mr. Donald Hays, Principal Deputy High Repre- Michel Noel, Lead Financial Specialist sentative, OHR Sebnem Akkaya, Senior Country Economist Mr. Renzo Daviddi, Head, Economic & Political Betty Hanan, Task Manager for Health Projects Section, EC Kinnon Scott, LSMS Mr. Peter Paproski, Head of Technical Coopera- Philip O'Keefe, Social Protection Task Manager tion, CIDA James Stevens, Senior Operations Manager Mr. Almir Tanovic, Program Officer, CIDA Emily Andrews, Lead Evaluation Officer H.E. Rob Bosscher, Ambassador, Embassy of the Robert Palacios, Senior Economist Netherlands Verdon Staines, Senior Economist Mr. Jan de Boer, Second Secretary, Embassy of the Kendra Gregson, Consultant Netherlands Misha Belkindas, Lead Statistician Mr. Nedim Bukvic, Program Officer, SIDA Christian Bodewig, Consultant Mr. John Hansen, Project Manager, DfID Alan Abrahart, Consultant Ian Bannon, Manager, Conflict Prevention & Re- NGOs construction Ms. Nejira Nalic, Executive Director, MI-BOSPO Ruslan Yemtsov, Senior Economist Mr. Zarko Papic, Independent Bureau for Hu- Sergei Shatalov, Senior Economist manitarian Issues Marcelo Bisogno, Country Economist Mr. Greg Aubbery, Catholic Relief Services Roy Gilbert, Lead Evaluation Officer Maniza Naqvi, Senior Operations Officer World Bank Csaba Feher, Senior Economist Mr. Dirk Reinermann, Country Manager Mr. Goran Tinjic, Project Officer IMF Ms. Mirjana Karahasanovic, Project Analyst Pierre Lazar Mr. Jean-Luc Bernasconi, Senior Economist Ms. Berina Selimovic-Mehmedbasic 6 0 ANNEX C: GUIDE TO OED'S COUNTRY ASSISTANCE EVALUATION METHODOLOGY This methodological note describes the key el- Bank performance was also unsatisfactory, and ements of OED's Country Assistance Evaluation vice-versa. This becomes clearer once we con- (CAE) methodology.1 sider that the Bank's contribution to the outcome of its assistance program is only part of the story. CAEs rate the outcomes of Bank assistance programs, The assistance program's outcome is determined not clients' overall development progress. by the joint impact of four agents: (a) the client, An assistance program needs to be assessed on how (b) the Bank, (c) partners and other stakehold- well it met its particular objectives, which are typ- ers, and (d) exogenous forces (such as events of ically a sub-set of the client's development objec- nature, international economic shocks, and so tives. If an assistance program is large in relation on). Under the right circumstances, a negative to the client's total development effort, the program contribution from any one agent might over- outcome will be similar to the client's overall de- whelm the positive contributions from the other velopment progress. However, most Bank assis- three, and lead to an unsatisfactory outcome. tance programs provide only a fraction of the total OED measures Bank performance primarily resources devoted to a client's development by on the basis of contributory actions the Bank di- donors, stakeholders, and the government itself. rectly controlled. Judgments regarding Bank In CAEs, OED rates only the outcome of the Bank's performance typically consider the relevance program, not the client's overall development out- and implementation of the strategy; the design come, although the latter is clearly relevant for and supervision of the Bank's lending interven- judging the program's outcome. tions; the scope, quality, and follow-up of diag- The experience gained in CAEs confirms that nostic work and other analytical and advisory program outcomes sometimes diverge signifi- activities; the consistency of Bank's lending with cantly from the client's overall development its non-lending work and with its safeguard poli- progress. CAEs have identified assistance pro- cies; and the Bank's partnership activities. grams that had: Evaluation in Three Dimensions · Satisfactory outcomes matched by good client As a check on the inherent subjectivity of ratings, development OED examines a number of elements that con- · Unsatisfactory outcomes with clients that tribute to assistance program outcomes. The achieved good overall development results, consistency of ratings is further tested by ex- notwithstanding the weak Bank program amining the country assistance program across · Satisfactory outcomes with clients that did not three dimensions: achieve satisfactory overall results during the period of program implementation. (a) A Products and Services Dimension, in- volving a "bottom-up" analysis of major pro- Assessments of assistance program outcome and gram inputs--loans, analytical and advisory Bank performance are not the same. activities, and aid coordination By the same token, an unsatisfactory assistance (b) A Development Impact Dimension, involv- program outcome does not always mean that ing a "top-down" analysis of the principal 6 1 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y program objectives for relevance, efficacy, out- Highly Satisfactory: The assistance program come, sustainability, and institutional impact achieved at least acceptable progress toward all (c) An Attribution Dimension, in which the eval- major relevant objectives, and had best practice uator assigns responsibility for the program development impact on one or more of them. outcome to the four categories of actors. No major shortcomings were identified. Satisfactory: The assistance program achieved Rating Assistance Program Outcome acceptable progress toward all major relevant In rating the outcome (expected development objectives. No best practice achievements or impact) of an assistance program, OED gauges major shortcomings were identified. the extent to which major strategic objectives Moderately Satisfactory: The assistance pro- were relevant and achieved, without any short- gram achieved acceptable progress toward most comings. Programs typically express their goals in of its major relevant objectives. No major short- terms of higher-order objectives, such as poverty comings were identified. reduction. The Country Assistance Strategy (CAS) Moderately Unsatisfactory: The assistance may also establish intermediate goals, such as im- program did not make acceptable progress to- proved targeting of social services or promotion ward most of its major relevant objectives, or of integrated rural development, and specify how made acceptable progress on all of them, but ei- they are expected to contribute toward achieving ther (a) did not take into adequate account a key the higher-order objective. OED's task is then to development constraint or (b) produced a major validate whether the intermediate objectives pro- shortcoming, such as a safeguard violation. duced satisfactory net benefits and whether the re- Unsatisfactory: The assistance program did sults chain specified in the CAS was valid. Where not make acceptable progress toward most of its causal linkages were not fully specified in the CAS, major relevant objectives, and either (a) did not it is the evaluator's task to reconstruct this causal take into adequate account a key development chain from the available evidence and assess rel- constraint or (b) produced a major shortcoming, evance, efficacy, and outcome with reference to the such as a safeguard violation. intermediate and higher-order objectives. Highly Unsatisfactory: The assistance pro- Evaluators also assess the degree of client gram did not make acceptable progress toward ownership of international development prior- any of its major relevant objectives and did not ities, such as the Millennium Development Goals, take into adequate account a key development and Bank corporate advocacy priorities, such as constraint, while also producing at least one safeguards. Ideally, any differences in dealing major shortcoming, such as a safeguard violation. with these issues would be identified and re- solved by the CAS, enabling the evaluator to The institutional development impact focus on whether the tradeoffs adopted were ap- (IDI) can be rated as: high, substantial, modest, propriate. However, in other instances, the strat- or negligible. IDI measures the extent to which egy may be found to have glossed over certain the program bolstered the client's ability to make conflicts or avoided addressing key client de- more efficient, equitable, and sustainable use of velopment constraints. In either case, the con- its human, financial, and natural resources. Ex- sequences could include a diminution of amples of areas included in judging the institu- program relevance, a loss of client ownership, tional development impact of the program are: and/or unwelcome side-effects, such as safe- guard violations, all of which must be taken into · The soundness of economic management account in judging program outcome. · The structure of the public sector and, in par- ticular, the civil service Ratings Scale · The institutional soundness of the financial OED utilizes six rating categories for outcome, sector ranging from highly satisfactory to highly un- · The soundness of legal, regulatory, and judicial satisfactory: systems 6 2 A N N E X C : G U I D E T O O E D ' S C O U N T R Y A S S I S TA N C E E VA L U AT I O N M E T H O D O L O G Y · The extent of monitoring and evaluation sys- · Economic resilience tems · Social support (including conditions subject to · The effectiveness of aid coordination safeguard policies) · The degree of financial accountability · Environmental resilience · The extent of building NGO capacity · Ownership by governments and other key · The level of social and environmental stakeholders capital. · Institutional support (including a supportive legal/regulatory framework, and organizational Sustainability can be rated as highly likely, and management effectiveness) likely, unlikely, highly unlikely, or, if available · Resilience to exogenous effects, such as in- information is insufficient, non-evaluable. Sus- ternational economic shocks or changes in tainability measures the resilience to risk of the the political and security environments. development benefits of the country assistance program over time, taking into account eight factors: · Technical resilience · Financial resilience (including policies on cost recovery) 6 3 ANNEX D: COMMENTS FROM THE GOVERNMENT BOSNA I HERCEGOVIA BOSNIA AND HERZEGOVINA VIJECE MINISTARA COUNCIL OF MINISTERS PREDSJEDAVAJUCI CHAIRMAN Sarajevo, April 12, 2004 THE WORLD BANK Operations Evaluation Mr. Gregory K. Ingram Director-General Re: Bosnia and Herzegovina ­ Country Assistance Evaluation Dear Mr. Ingram: Thank you on your letter of March 10, 2004 and opportunity to comment a draft OED report entitled "Bosnia and Herzegovina Country Assistance Evaluation", which assesses World Bank assistance to Bosnia and Herzegovina during the period 1996 ­ 2003. In general I share the analysis of the World Bank strategy and overall economic per- formance. The governments in Bosnia and Herzegovina regard the World Bank con- tribution to the recovery of our country as immeasurable. The World Bank has played a pivotal role in providing the country with necessary financing and technical assis- tance. However, extremely good job has been done in the area of donor mobilization and co-ordination. Given this I would share your analysis that in Bosnia, the World Bank was "at its best", and that experience from the Bank's involvement in our coun- try could be regarded as "best practice". For the future Bank's involvement in post con- flict situations I would recommend the same approach to be taken -- early involvement and stengthening of the government capacity should remain the main elements of the future strategy. The positive impact of the Bank's involvement in post conflict society like Bosnia and Herzegovina is noticeable in all areas and sectors. Bosnia and Herzegovina rep- resents good case where co-coordinated donor assistance, together with building local capacities of the post conflict society, could improve situation economically and politically. The privatization of the banking sector in Bosnia and Herzegovina is one of the suc- cess stories. However, insufficient results in privatization of companies could be re- garded as not satisfactory. Despite efforts made by the World Bank this area remains the matter for biggest concern. The World Bank failed to make satisfactory impact on the previous governments to successfully close the privatization process of the companies. One of the reasons for this was the "lack of the ownership on the Bank side". The Bank should have not allowed having so many players on the donor's side involved in Sarajevo, Trg Bosne i Hercegovine 1; Telefon: +387 33 269 570, 269 571, 269 572, 663 519; Fax: 211 464 6 5 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y "helping" the country to speed up the privatization. This area has traditionally al- ways been the area where the Bank has comparative advantage. Together with gov- ernment's indecisiveness, this contributed to creation of the big corporate debt, which is the biggest problem and risk for the Bosnia economy today. Therefore, I hope that Bank will not continue making the same mistake and will impose itself as main player in the forthcoming process of helping the governments to implement corporate re- structuring plan, which is under preparations. This would be a clear recommenda- tion from our side. I would also like to support the recommendations to integrate the PIU structure into the governments and to make sure that the future Bank's country assistance will be in line with the Medium Term Development Strategy of BiH (PRSP) and the EU integration process. Yours Sincerely, Adnan Terzi Copy: Mr. Andrianus P.W. Melkert, Executive Director for BiH Mr. Ajay Chhibber, Director, OED Mr. R. Kyle Peters, Senior Manager, OED Ms. Orsalia Kalantzopoulos, Country Director for BiH Mr. Dirk Reinermann, Country Manager for BiH 6 6 ANNEX E: IFC'S ASSISTANCE TO BOSNIA AND HERZEGOVINA IN FY97­03 Bosnia and Herzegovina (BiH) became a member countries2 in the ratio of IFC approvals and com- of IFC in April 1996. IFC's strategy in the country mitments to average GDP for the period and out- has been to support public and private efforts to ranked other Southern European countries except bring about a dual transformation in BiH, facili- Macedonia and, in the case of approvals, Albania. tating on the one hand post-conflict rehabilitation In approvals and commitments per capita, BiH was and reconstruction and, on the other hand, the among the top five transition countries and third transition from a socialist to a market economy. among Southern European countries. The strategy thus encompassed all sectors of the While only three projects so far have had their economy, but particularly areas of pre-war strength outcomes evaluated, this Operations Evaluation (SMEs, wood processing, agribusiness) and post- Group (OEG) review complemented evaluation war development needs (financial markets and in- findings with data from supervision documents frastructure). Early on in its involvement, IFC and credit risk ratings (CRRs) to arrive at judg- recognized that serious deficiencies in BiH's busi- ments regarding the development and invest- ness climate with regard to privatization and the ment outcomes of the 10 mature projects. The regulatory environment needed to be addressed findings indicate that IFC's strategy was mostly through non-investment operations, and that all appropriate, especially with respect to financial investment projects in BiH required substantial markets development. Both projects in the bank- technical assistance if they were to become bank- ing sector, a microfinance bank and a special able prospects. Accordingly, IFC followed a mul- purpose vehicle for commercial bank privatiza- tidimensional approach, combining investment tion, have had significant and far-reaching de- operations in strategically targeted areas with var- velopment impacts and justify IFC's continued ious non-investment operations. involvement in the sector, evidenced by new Investments were made directly and through commitments. Projects in the food and beverages the IFC Small Enterprise Fund (SEF), a facility sector have likewise delivered good results. The specializing in financing SMEs in a selected group only significant shortfall in the strategy appears of countries throughout the world covered by to have been the emphasis on the wood-pro- the FY96­approved "Extending IFC's Reach" ini- cessing sector. Both IFC projects in the sector tiative. Between FY97 and FY03, in line with the have performed extremely poorly and had min- strategy, IFC approved US$100 million (including imal or negative development impacts. Reasons US$8 million in syndicated loans) in 16 projects for the poor performance include the historical in financial markets (including microfinance and ownership structure and organization in BiH's collective investment vehicles), cement and con- wood processing industry, where companies struction, wood processing, food and beverages, were part of a state conglomerate that controlled chemicals, and trade. This led to 13 commitments centralized marketing, accounting, and produc- with a total value of US$70 million. While BiH's tion functions. As a result, companies did not FY97­03 approvals and commitments trailed some lend themselves easily to privatization and lacked other Southern European countries1 (Croatia, essential management and marketing skills. Tech- Bulgaria, and Romania) in dollar amounts, BiH nical assistance provided by IFC proved insuffi- nevertheless ranked seventh among all transition cient to overcome these weaknesses. By the time 6 7 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y the BiH agency line was approved, the agency line of SEED conducted by OEG in 2003 found that instrument (practically discontinued in IFC by most SMEs are satisfied with the investment and now) had a well-established IFC-wide track record SME capacity building services provided by SEED of poor outcomes, but it was ignored and another and reported improved performance as a result poor outcome resulted. Overall, IFC's opera- of changes catalyzed by SEED in their strategy or tions in BiH made a significantly negative con- operations. The study also concludes that SEED tribution to IFC's net profit inclusive of IFC's has contributed to specific reforms aimed at en- own-account TA expenditures, and put BiH near hancing the business environment, a critical pri- the bottom in profit contribution ranking among ority for BiH. Going forward, it recommends, transition countries. most importantly, that SEED focus its efforts to Non-investment operations were undertaken provide more intensive services to clients and by the Foreign Investment Advisory Service consider reorganizing its operations based on (FIAS); Southeast Europe Enterprise Develop- countries and service lines. ment (SEED), a project development facility In terms of TATF volume, BiH is the fourth- managed by IFC; and by project consultants largest client among transition countries after funded through IFC's Technical Assistance Trust Russia, Ukraine, and Belarus, and the largest Funds (TATF). among Southern European countries in both ab- FIAS undertook four operations during solute volume and ratio of TATF funding to GDP. FY98­03, starting with assistance to the govern- Between FY97 and FY03, IFC arranged TATF fund- ment in drafting an investment policy law, and also ing for 20 operations. Most of these (16, or 80 per- including assistance in the development of an in- cent) were linked to specific investment projects, stitutional framework for the newly established with virtually every investment project entailing Foreign Investment Promotion Agency (FIPA). a TA component. Faced with BiH's difficult busi- FIAS also carried out two studies of administra- ness climate, IFC made an appropriate choice of tive barriers to investigate the procedural im- instruments in complementing investment op- pediments to the establishment and operation of erations with non-investment support. Yet the investment projects, including one performed bulk of both funds (52 percent) and of projects in conjunction with the World Bank Business En- (45 percent) related to the wood processing sec- vironment Adjustment Credit (BAC). While most tor, and, in retrospect, considering the minimal of these are too recent to have been covered by impact of TA in the sector, the funding could the joint OED-OEG evaluation of FIAS in 1998, have been allocated more efficiently to projects evidence from other sources suggests that the de- in other sectors (especially financial markets, livery and outcomes of these operations are sat- where TA has been shown to have had a signifi- isfactory and impacts are forthcoming. cant impact on private sector development). Since its inception in mid-2000, SEED has pro- Among the lessons IFC has derived to date vided investment services (including preparation from its investment and non-investment opera- of internal enhancement and investment plans) tions in BiH are (1) the need to take into account and capacity building services (including training) relevant specific country risks when screening to SMEs and local business associations. It has also projects and to hold off disbursement if funda- sought to improve the business enabling envi- mental project weaknesses are not first resolved; ronment for SMEs by working with government (2) the need to critically assess, in light of lessons agencies and international donors on policy, legal, of experience, the ability of state-owned com- and regulatory reform efforts. In addition to BiH, panies to function independently in a market en- the facility also operates in Albania, Kosovo, FYR vironment following their split-off from a state Macedonia, and Serbia and Montenegro. However, conglomerate; and (3) the critical importance of BiH is its largest client, accounting for 51 per- streamlined design and local expertise in plan- cent of the entire SEED workforce and more than ning non-investment operations, and of attentive 40 percent of projects in each category of services monitoring of such operations to be able to it provides. An independent mid-term evaluation make timely adjustments. 6 8 A N N E X E : I F C ' S A S S I S TA N C E T O B O S N I A A N D H E R Z E G O V I N A I N F Y 9 7 ­ 0 3 1 2 7 3 2 1 No. 16 No. 1 2 3 3 2 1 13 FY97-03 FY97-03 M M 5.0 2.5 otal,T 29.1 34.5 12.6 16.0 99.6 otal,T US$ 9.8 4.5 8.7 2.5 28.3 16.4 70.2 US$ by No. - - - - - - - No. 1 - a - - - 1 2 FY03 FY03 M - - - - - - - M - - - - 9.8 12.7 22.5 US$ US$ FY97­03 1 - 2 - - - 3 - - 1 - - - 1 No. No. in FY02 FY02 M - - - - M - - - - - US$ 29.1 17.5 46.6 US$ 12.4 12.4 BiH - 1 2 - - - 3 . 1 a - - - 1 No. No. in FY01 FY01 M - - - - M - - - - 2.3 respectively 2.1 0.4 2.5 14.1 16.4 US$ US$ olume pprovals,a V - - - - - - - - - - - - - - No. loan No. FY00 FY00 M - - - - - - - M - - - - - - - syndicated and US$ in US$ M , - 1 1 1 - - 3 US$5 1 a 2 - 1 4 Commitments No. No. and FY99 M FY99 M - - - M - - 2.7 0.3 2.4 5.3 US$3 2.4 0.3 4.6 2.5 9.8 and US$ US$ Number include , No. - - - 1 2 1 4 FY02 No. 2 1 2 5 commitment. in FY98 FY98 ear M - - - M - - - individual Y 2.1 2.5 2.5 4.1 16.0 20.6 construction 16.4 23.0 an , US$ US$ and - - - - - - - - - - - Approvals No. 2 1 3 No. considered cement not for FY97 FY97 is M - - - - and M - - - - - - - 2.6 8.1 that IFC Sector 10.7 US$ FY97 US$ in issue rights a beverages E.1 and include food year construction (wood) for construction the markets beverages and FY markets beverages (wood) FY and for able and for for T Approvals Amounts: and Commitments A. Cement Chemicals Financial Food Industrimal radeT otalT Note B. Cement Chemicals Financial Food Industrial radeT otalT Amounts a. 6 9 ANNEX F: MIGA GUARANTEE OPERATIONS IN BOSNIA AND HERZEGOVINA Project enterprise Investor name Investor country Sector FY issued Active CC Beverages Production Coca-Cola Beverages Services d.o.o. Holdings II B.V. Netherlands Manufacturing 2000 No Coca-Cola Beverages Coca-Cola Beverages B-H d.o.o. Holding II B.V. Netherlands Manufacturing 2000 No Coca-Cola Beverages CCB Management B-H d.o.o. Services G, bh Austria Manufacturing 2000 No Faiffeisenbank d.d. Raiffeisen Zentralbank Osterreich AG Austria Financial 2001 Yes International Dialysis International Dialysis Centers Banja Luka Centers B.V. Netherlands Services 2001 Yes International Dialysis International Dialysis Centers Banja Luka Centers B.V. Netherlands Services 2001 Yes Hypo Alpe-Adria-Bank d.d. Bosnia Herzegovina Hypo Alpe-Adria-Bank AG Austria Financial 2001 Yes Hypo Alpe-Adria-Bank d.d. Bosnia Herzegovina Hypo Alpe-Adria-Bank AG Austria Financial 2001 Yes Commerce Bank d.d. Slovene Export Corporation, Inc. Slovenia Financial 2002 Yes Mercator Trzni Centar Poslovni Sistem Mercator Sarajevo d.d. Slovenia Services 2002 Yes Mercator Trzni Centar Poslovni Sistem Mercator Sarajevo d.o.o. d.d. Slovenia Services 2002 Yes HVB-Bank Bosnia and Bank Austria Creditansstalt Herzegovina d.d. AG Austria Financial 2003 Yes Kristal Banks Ad Banja Luka Hypo Alpe-Adria Bank AG Austria Financial 2003 Yes Raiffeisen Bank d.d. Raiffeisen Zentralbank Bosnia Herzegovina Osterreich AG (RZB) Austria Financial 2003 Yes Banja Luka D.O.O. International Dialysis Centers BV Netherlands Services 2004 Yes Raiffeisen Bank d.d. Raiffeisen Zentralbank Bosna i Hercegovina Osterreich AG Austria Financial 2004 Yes Raiffeisen Bank d.d. Raiffeisen Zentralbank Bosnia Herzegovina Osterreich AG Austria Financial 2004 Yes 7 1 ANNEX G: MANAGEMENT ACTION RECORD Major Monitorable OED Recommendations Requiring a Response Management Response Future country assistance strategies will World Bank has historically worked very closely with the EC, co-chair- need to be closely aligned with both the ing five donor conferences for BH. More recently staff, in close collabo- PRSP and EU assistance, in order to lever- ration with both the BH authorities and the EC, have successfully helped age reduced IDA assistance and keep BiH to ensure that governments' recently completed medium-term develop- focused on EU association and eventual ment strategy (PRSP) is a single strategy with objectives both of growth accession. and poverty reduction and stabilization and association with the EU. The Bank's new FY05­08 CAS will be firmly rooted in the PRSP and is cur- rently being prepared in close partnership with the EC to ensure assis- tance is complementary and more selective, given declining IDA flows to BH. It is anticipated future CASs will be prepared and implemented in the same manner. Future assistance should give priority to Management is placing even greater emphasis on governance in both on- governance issues in all sectors. In PSD, going and upcoming Bank-supported activities. The new draft CAS proposes for example, this would include focusing programmatic lending whose primary focus in the early years is to support on dealing with state-owned enterprises the authorities in solving corporate governance issues in the SOEs to fa- (hard budget constraints, removing legal cilitate further privatization and liquidation; in parallel with ongoing com- and institutional barriers to privatization) plementary efforts to reform public administration and reduce its share within and strengthening privatization agencies. the economy. Nevertheless, it should be noted that this approach still re- quires strong "ownership" from the BH authorities to succeed. Use of PMUs should be discontinued and PMUs have served the Bank well in the immediate post-conflict period, as PMUs should be absorbed into govern- the CAE also points out. Recognizing the need to further empower gov- ment structures. This will in turn require ernments, the number of PMUs has already been significantly reduced in reforms in civil service pay scale. recent years, and the mainstreaming of some PMU activities into govern- ment has taken place. Management clearly recognizes that the time has now come for an accelerated approach to mainstreaming. In the recent 2003 CPPR a decision was made that all new projects should be implemented within government structures. Nevertheless, until significant strengthen- ing of government procedures and processes takes place, certain PMU ac- tivities (particularly procurement and financial management) will have to be contracted out to safeguard the Bank's fiduciary obligations. 7 3 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y Major Monitorable OED Recommendations Requiring a Response Management Response Bank projections on growth, creditwor- Building on the lessons of the past, management intends to be even more thiness, and pace of reforms should be cautious in all these areas, making careful assessments of the political made on a more conservative basis than economy of reform. Nevertheless the Bank needs to use its leadership in the past. and convening power to best effect to help the BH authorities acceler- ate the reform process to ensure a self-sustaining economy emerges sooner rather than later. Any access to IBRD lending will be predicated on well-defined triggers, which establish that substantive milestones in the reform process will have been achieved. 7 4 ANNEX H: CHAIRPERSON'S SUMMARY: COMMITTEE ON DEVELOPMENT EFFECTIVENESS (CODE) The informal Subcommittee (SC) of the Com- judicial reform, will be intensified in coordina- mittee on Development Effectiveness (CODE) tion with other donors; (iii) various initiatives met on June 2, 2004 to discuss the Bosnia and were being pursued to phase out PMU's in proj- Herzegovina (BiH) Country Assistance Evaluation ect implementation but certain PMU activities will (CAE) prepared by the Operations Evaluation De- remain contracted out to safeguard the Bank's partment (OED). fiduciary responsibilities, especially in procure- ment and financial management, until signifi- Background. OED's report noted that the overall cant improvements occur in the institutional outcome of the Bank's contribution to the re- capacity of BiH. Management did note, how- construction program in BiH was satisfactory. ever, the CAE's assessment of Bank assistance to Progress was observed in some areas of public the financial sector had underestimated the lead- sector management such as fiscal management, ership role the Bank played in helping the au- tax harmonization and coordination, and re- thorities successfully reform the banking sector, structuring of financial sector. The Bank has suc- and the success acknowledged by the CAE, of a cessfully supported reforms in health, education, variety of Bank-supported financial instruments social protection, and infrastructure. However, the to help the real sector. report also noted that the transition to a private The Chair representing BiH expressed her sector-led, market-based economy had made lim- appreciation for OED's report and the manage- ited progress. The outcome of mass privatiza- ment comments. She noted that the country tion of large enterprises has been generally faces risks related to the existing complex gov- unsatisfactory; the environment for PSD remains ernment structure, external shocks, and the un- unfriendly; and problems remain in the financial finished reform agenda in the areas of labor sector. The evaluation concluded that the Bank's market, large public enterprises, and competi- assistance should be focused on improving eco- tiveness. She also indicated that her authorities nomic policies and management, supporting the share the conclusions of OED's analysis and ap- country's efforts toward EU association, closely preciate the Bank's timely support since the end aligning the Bank's program with the PRSP to of the war and expect further Bank assistance in strengthen the government ownership of re- the privatization process. forms, and paying more attention on weaknesses in governance across all sectors of the economy. Main Conclusions and Next Steps. The Subcommit- Management broadly concurred with the CAE tee welcomed the CAE and agreed with the OED conclusions and noted that the recommenda- evaluation of Bank assistance. Members com- tions will be reflected in the new BiH country mended the management for an outstanding strategy. Management noted that (i) the corpo- performance during the reconstruction period rate governance issues in the SOEs and privatized and encouraged the country team to continue firms will be taken up in a new programmatic ad- supporting the country's efforts to recover eco- justment operation that will be included in the nomic growth. Among the major issues discussed country strategy ; (ii) the improvement of the at the meeting were the challenges ahead, the vul- business environment, in particular through the nerabilities of the economy, and the lessons to be 7 5 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y drawn from this conflict affected country. Mem- relatively low salaries in the public administra- bers welcomed the timely discussion of the CAE tion compared to the salaries paid to the PMU staff. prior to the Board meeting on the PRSP. OED noted that the use of PMUs is a common The following points were raised: practice in Bank projects, particularly but not ex- clusively in post-conflict cases, and a reflection of Bank strategy and assistance. Members noted that lack of government capacity and the need to the early involvement of the Bank, especially in- move quickly. Management agreed with the ques- vestment in the infrastructure sector, was an im- tions posed on corruption and governance, and portant factor in the success of the indicated that the lending program and policy reconstruction program. Members commended dialogue are geared to enhance the capacity of the the Bank's adequate assistance in spite of the lack public sector; however, results from these efforts of information and absence of government's should be expected in the medium term. PMUs strategy in 1995. OED recognized that at the be- will gradually become part of the government. ginning of the exercise there was no blueprint, and there was no real government role because Privatization. Members noted that the limited it was very fragmented. progress in privatization could be rooted in the lack of adequate information and weak involve- Donor coordination. Several members indicated that ment of the Bank in pushing for reforms. A mem- BiH is an exceptional case of Bank and donors as- ber supported the government request for Bank sistance compared to other post-conflict countries. assistance in implementing a sound privatiza- OED agreed that the international community tion program. Management recognized that the responded generously. Some members welcomed size of the public sector is one of the impedi- BiH as best practice for the Bank's involvement ments to increasing savings. in donor coordination, i.e., in organizing Con- sultative Group meetings for mobilizing funding Social data. One member asked about the reasons through trust funds. However, one member for significant population growth in 1995, and stressed that the coordination was not that good also stressed that the social indicators such as a in-country or on the ground, and asked for more high rate of immunization do not clearly indicate details on the obstacles to better coordination, on that there were improvements. OED explained what could have been done differently, and why that the surge of population could be explained the Bank did not chair any of the working groups by the influx of refugees back to the country in the country. OED noted that the U.N. and other post war. Management clarified that social indi- organizations had been in the country during the cators as recorded in the CAE were considered conflict; the Bank started its support somewhat to be reasonably accurate given that BiH inher- later when roles had already been assumed by oth- ited fairly robust social services from the Former ers. Rather than looking at the past, management Socialist Republic of Yugoslavia. Nevertheless, proposed to look forward to bringing donor co- there were still significant weaknesses in na- ordination closer to the country; empowering tional statistics--for example, a census had not the BiH authorities to take over donor activities been carried out since before the war--which themselves, moving donor activities from Brussels were gradually being addressed through ongo- to the country office; and adopting a harmoniza- ing EU, IMF, and Bank supported programs. tion agenda. Debt analysis. Some members were interested in PMU. One member expressed his concern that the adequacy of future financial flows; and oth- PMUs may weaken the capacity of the countries ers asked whether the country's future negative rather than strengthen them. Another member transfers might indicate an unsustainable debt asked if the problem of tax evasion and corrup- burden. They also wanted to know how the neg- tion is partially attributed to an incentive for rent- ative flow will influence the Bank's future rela- seeking of government officials due to the tionship with the country. Management replied 7 6 A N N E X H : C H A I R P E R S O N ' S S U M M A R Y: C O M M I T T E E O N D E V E L O P M E N T E F F E C T I V E N E S S ( C O D E ) that with the three new adjustment credits, net PRSP priorities, the privatization program, EU in- flows will be positive given the continued program tegration, improvement of governance, strength- performance. One member asked whether the ening institutions, and integration of PMUs into Bank is being overly optimistic regarding the re- the public sector. Members stressed the impor- sumption of IBRD lending to BiH. OED noted that tance of consolidating market-oriented reforms, BiH inherited IBRD debt as a share of the debt and improving the business climate. Manage- split up from former Yugoslavia. Management ment echoed the concerns expressed by the added that the debt situation is improving ac- Subcommittee members and OED and indicated cording to the new country strategy projections. that the privatization agenda together with im- proving the public sector are the two main pil- Looking forward. Members overall concurred with lars of the country strategy. the OED recommendations to emphasize the Chander Mohan Vasudev Chairman 7 7 ENDNOTES Executive Summary 3. These included foreign relations; customs and 1. The High Representative represents the Peace foreign trade policy, immigration, inter-entity policies Implementation Council, which is composed of the on transport, communications and energy, respon- nations that undertook to support the peace agree- sibility for all external debt; and a Central Bank, ment. The Council also reports to the European Union headed by a non-BiH citizen, which would operate as (EU) and the U.N. Security Council. a currency board for a minimum period of six years. 2. During calendar year 1996, the Bank initiated 16 The Dayton Accords gave the IMF control over mon- emergency reconstruction projects, with a total IDA etary policy and authority to appoint the governor of and trust fund commitment of $356 million. the Central Bank. 4. There is also the enclave of Brcko, which is ad- Resumen ministered separately. 1. El Alto Representante representa al Consejo de 5. The Entity governments have been demobiliz- Implementación de la Paz, formado por los países ing since 1999 under intense pressure from the in- que se comprometieron a respaldar el acuerdo de ternational community and are moving slowly toward paz, y que depende asimismo de la Unión Europea y a unified military policy and a single defense force. del Consejo de Seguridad de las Naciones Unidas. 6. However, the Dayton Accords did provide that, 2. Durante el año 1996, el Banco inició 16 proyec- with the approval of the State Parliament, the State tos de reconstrucción de emergencia, habiéndose could impose taxes. comprometido un total de $356 millones en recursos 7. Referred to as the Priority Reconstruction and de la AIF y fondos fiduciarios. Recovery Program. The total was to be divided be- tween the FBH ($3.7 billion) and the RS ($1.4 bil- Résumé analytique lion), primarily on the basis of population. 1. Le Haut Représentant représente le Conseil de 8. GDP data are only estimations. The underlying mise en oeuvre de la paix, composé des nations qui data series are either weak or nonexistent. Current se sont engagées à appuyer l'accord de paix. Le Con- population numbers are also estimates; there has seil rend également compte à l'Union européenne been no census since 1991. The return of refugees and (UE) et au Conseil de sécurité des Nations Unies. the resettlement of the internally displaced have been 2. Au cours de l'année civile 1996, la Banque a pris carefully documented by United Nations High Com- l'initiative de 16 projets de reconstruction d'urgence, missioner for Refugees, but there has also been sig- qui ont bénéficié d'un engagement de l'IDA et du fonds nificant out-migration. Some sources estimate the fiduciaire se chiffrant au total à 356 millions de dollars. current population to be 4.0-4.1 million, but many ob- servers believe that the population has not recov- Chapter 1 ered to that level. This report uses an estimate of 3.8 1. The 1991 population of 4.4 million comprised million. 43.7 percent Moslems (now referred to as Bosniaks), 9. U.N. estimates of poverty incidence in the im- 31.4 percent Serbs, 17.3 percent Croats, and 7.6 per- mediate post-war period range from 50 percent to 70 cent "other" ("Yugoslav" or other nationalities). percent. The only reliable survey of poverty in the 2. Formally titled "The General Framework Agree- country is the 2001 LSMS Household Survey, which ment for Peace in Bosnia and Herzegovina." gave an overall poverty rate of 19.5 percent (16 per- 7 9 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y cent in FBH and 25 percent in RS), but with another However, loans to municipalities have been less suc- 30 percent of the population only marginally above the cessful, and lending to farmers has not had a good re- poverty line. Poverty incidence for other former SFRY payment record. republics for which data are available (for 1999) is re- 9. One reason for the delay could have been the ported to be: Croatia, 8 percent; Macedonia, 16 per- lengthy transition period for the formation of new gov- cent; Serbia and Montenegro, 18 percent. See World ernments after the fall 2000 elections. But this could Bank 2003d. have been anticipated and factored into the loan design. Chapter 2 10. For example, in the FBH the full privatization 1. Because BiH was not yet a member of the Bank, of the PBS Group (Privredna Banka Sarajevo) is still there was no Bank budget for these activities. The BiH pending, although the largest unit of the PBS Group, Working Group was initially funded by the Netherlands Central Profit Bank, was merged with another PBS government, and subsequently by the United States bank, Travnica Banka, and finally sold to a major Aus- as well. trian Bank in October 2003. 2. Of the TFBH, $25 million was provided on grant 11. Council of Europe and the World Bank 2000 and terms and the balance on IDA terms. other project-related analytical work fed into broader, 3. The cutoff income level for IDA eligibility was a integrative studies such as World Bank 2002b, 2003d. 1994 per capita GNP of $865. 12. This system required firms to keep workers they 4. A 1997 World Bank private sector assessment and could not employ full time on a "waitlist" and pay an FIAS report, Commercial and Legal Framework them partial compensation and social benefits until and Administrative Barriers to Investment in BiH such time as the firm could hire them. (FIAS 2001). The private sector assessment was widely 13. The Bank did, however, coordinate a Social disseminated and discussed at a seminar organized by Protection Task Force. the World Bank Institute. 5. The government, with the support of key ele- Chapter 3 ments of the international community, was strongly 1. Official statistics report unemployment rates of in favor of mass privatization, primarily in order to set- over 40 percent, but these data are known to be over- tle significant claims of private citizens against the stated, because employers have a strong incentive State that had arisen as a result of the war. not to report all employees; and those who are un- 6. In the EBPAC documents (see World Bank recorded for wage tax purposes, plus many of the 2003e), the Bank noted that progress in setting up the self-employed, report themselves as unemployed and appropriate architecture for fostering private mar- draw unemployment compensation. The LSMS study kets has greatly outpaced developments in other tran- reported unemployment of 16 percent. However, sition economies, and Bosnia is now poised to advance most observers think that total unemployment is in rapidly. Yet in 1999 a Wall Street Journal survey ranked a range of 20­25 percent. Of most concern is the BiH's investment climate 19th among 27 transition scant evidence of any significant decline in unem- countries. The 2001 FIAS study confirmed that the ab- ployment over time. sence of a transparent and predictable legal and reg- 2. Private savings were an estimated 0.7 percent of ulatory framework was a major impediment to GDP in 2003 (Source: PRSP). establishing and operating a business in BiH. 3. EBRD, Transition Report 2003, p. 124. This es- 7. More than 90 percent of banking sector assets timate differs from a June 2003 estimate by the World in the FBH were nonperforming in 1996. Bank, which stated that small-scale privatization was 8. In RS the Emergency Pilot Credit Project was fully essentially complete in both the Federation and RS. disbursed six months ahead of schedule and the re- 4. These figures in particular should be treated payment rate was 97 percent. More than 50 percent with caution, as these are rough estimates based on of the credit line under the Private Sector Credit Pro- rough GDP data, and even rougher data on estimated ject (PSCP) was disbursed in the first year and, as of private informal activity. (Source: various EBRD Tran- October 2003, there had been no default in payment. sition Reports.) 8 0 E N D N O T E S 5. The government shares this view on the outcome 2. Some PMUs have been converted into "Foun- of privatization and states that the Bank should have dations" that manage several projects together. The taken more of a leadership role in the privatization Foundation in the RS handles eight IDA projects; the process (see Annex D). one in the FBH, four. In most cases the same project 6. The pre-conflict net enrollment ratio was prob- will have a separate PMU in each Entity. ably close to 100 percent. 7. LSMS data as cited in World Bank 2002b, pp. Annex C 92­93. 1. In this note, assistance program refers to prod- 8. A 1999 Survey indicated that private spending ucts and services generated in support of the eco- on health was about 4.7 percent of GDP, a very high nomic development of a client country over a specified figure relative to comparator countries (World Bank period of time, and client refers to the country that 2002c, p. 104). receives the benefits of that program. 9. The railways sector receives on the order of 40 million KM annually in direct subsidies to meet op- Annex E erating costs. Its own revenues do not even cover its 1. Southern European countries--with their pe- wage bill. The coal sector receives about 30 million KM riod average GDPs indexed on BiH as 100--include per year to meet its pension obligations and for direct here Albania (80), BiH (100), Bulgaria (287), Croatia operating subsidies. (451), FYR Macedonia (80), Moldova (34), and Ro- 10. Over half of all water produced is unaccounted mania (863). for, and only about half of what is billed is actually col- 2. Twenty-six countries in Europe and Central Asia: lected. In other words, only a quarter of all water con- Albania, Bosnia and Herzegovina, Bulgaria, Croatia, sumed is actually paid for. Matters are aggravated by Czech Republic, Hungary, Macedonia (former Yu- low tariffs that are insufficient to cover even operations goslav Republic of), Poland, Romania, Slovak Repub- and maintenance expenditures. lic, Slovenia, Latvia, and Lithuania; Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyz Re- Chapter 5 public, Moldova, Russia, Tajikistan, Turkmenistan, 1. The Bank operated in BiH in compliance with the Ukraine, and Uzbekistan. Serbia and Montenegro was established guidelines for post-conflict situations. not included in the analysis. 8 1 BIBLIOGRAPHY Bisogno, Marcelo, and Alberto Chong. 2003. Report of the Council of Europe for the World "Poverty and Inequality in Bosnia and Herze- Bank. Stasbourg, France. govina After the Civil War." World Develop- Daalder, Ivo, and B. Froman. 1999. "Dayton's ment 30 (1): 61­75. Incomplete Peace." Foreign Affairs 78 (6). Bojicic-Dzelilovic, V., and others. 2001. Interna- Donia, Robert J., and John V. A. Fine, Jr. 1994. tional Support Policies to South-East Euro- Bosnia and Herzegovina: A Tradition Be- pean Countries: Lessons (Not) Learned in trayed. New York: Columbia University Press. Bosnia-Herzegovina. Sarajevo: Muller. EBRD (European Bank for Reconstruction and Burg, Steven L., and Paul S. Shoup. 1999. The War Development). 2003. Strategy for Bosnia and in Bosnia-Herzegovina: Ethnic Conflict and Herzegovina. London. International Intervention. Armonk, N.Y. and ------. Various years. Transition Report. Lon- London: M.E. Sharpe. don. CBS News. 11/19/2003. "Nation Building." 60 Economist Intelligence Unit. 2003. Country Pro- Minutes, Volume 36, No. 2. New York, New file--Bosnia and Herzegovina (October 2003). York. London: The Economist Intelligence Unit. Central Bank of BiH. 2003. Central Bank Bul- Financial Times. 2003. "Fighting for Bosnia" (a letin. Sarajevo. review of the Office of the High Representa- ------. 2002. Annual Report. Sarajevo. tive and Lord Paddy Ashdown, the current Collier, Paul, and Anke Hoeffler. 2002. Aid, Pol- High Representative), London, October 25/26. icy and Growth in Post-Conflict Societies. Fox, W., and Christine Wallich. 1997. Fiscal Fed- World Bank Policy Research Working Paper No. eralism in Bosnia-Herzegovina. The Dayton 2902. Washington, D.C. Challenge. World Bank Policy Research Work- Commission of the European Communities. ing Paper 1714. Washington, D.C 2003. "Report from the Commission to the Government of Bosnia and Herzegovina, Ministry Council on the Preparedness of Bosnia and of Education, Standards and Assessment Herzegovina to Negotiate a Stabilization and Agency. 2003a. "External Assessment of Pupils' Association Agreement with the European Achievements in Class and Subject Teaching." Union." Brussels. Technical Report. Pretest ­ 2003. Sarajevo. Council of Europe. 1999. Education in Bosnia Government of Bosnia and Herzegovina. 2003b. and Herzeogina: Governance, Finance and On the Path to Self-Sustainable Economy and Administration. Legislative Reform Pro- Europe, Medium-Term Development Strategy gramme for Higher Education and Research, (Poverty Reduction Strategy Paper). Sarajevo. Council for Europe. Strasbourg, France. Jeffries, Ian. 2002. The Former Yugoslavia at the Council of Europe and the World Bank. 2000. Ed- Turn of the Twenty-First Century, A Guide to ucation in Bosnia and Herzegovina: Gov- the Economies in Transition. London and ernance, Finance, and Administration. New York: Routledge. World Bank lending documents, economic and sector work reports, OED assessments and PPARs, and IMF documents were also used. 8 3 B O S N I A A N D H E R Z E G O V I N A : R E C O N S T R U C T I O N A N D T H E T R A N S I T I O N T O A M A R K E T E C O N O M Y Kaminski, Bartlomiej, and Manuel de la Rocha. ------. 1998. "Poverty and Inequality in Bosnia- 2003. Stabilization and Association Process Herzegovina: the Legacy of the War." Human in the Balkans: Integration Options and Development Report. New York. Their Assessment. World Bank Policy Research Woodward, David. 1998. The IMF, the World Bank Working Paper 3108. Washington, D.C. and Economic Policy in Bosnia: a Prelimi- Knaus, Gerald, and Felix Martin. 2003. "Lessons nary Assessment. Oxford, U.K.: Oxfam. from Bosnia and Herzegovina: Travails of the World Bank. 2003a. "Foreign Trade Institutions European Raj." Journal of Democracy 14 (3). and Policies: Country Case Study of Bosnia- Nellis, John. 2002. "The World Bank, Privatization Herzegovina." In Trade Policies and Institu- and Enterprise Reform in Transition tions in the Countries of South Eastern Economies: A Retrospective Analysis." Oper- Europe in the EU Stabilization and Associa- ations Evaluation Department, World Bank, tion Process: Background Country Studies. Washington, D.C. Washington, D.C. ------. 1999. "Time to Rethink Privatization in ------. 2003b. Stabilization and Association Transition Economies." Finance and Devel- Process in the Balkans: Integration Options opment 36 (2). and Their Assessment. Washington, D.C. OED (Operations Evaluation Department, the ------. 2003c. World Development Report 2004: World Bank). 2004. Economies in Transition: Making Services Work for the Poor. Wash- An OED Evaluation of World Bank Assis- ington, D.C., and New York: World Bank and tance. Washington, D.C.: World Bank. Oxford University Press. ------. 2000. Bosnia and Herzegovina: Post- ------. 2003d. Bosnia and Herzegovina Poverty Conflict Reconstruction. OED Country Case Assessment. Washington, D.C. Study Series. Washington, D.C.: World Bank. ------. 2003e. "Implementation Completion OHR (Office of the High Representative). 2003. Report: Bosnia and Herzegovina Enterprise "Twenty-Fourth Report by the High Repre- and Banking Privatization Adjustment Credit." sentative for Implementation of the Peace Washington, D.C. Agreement to the Secretary-General of the ------. 2002a. Transition, The First Ten Years: United Nations." Sarajevo. Analysis and Lessons for Eastern Europe and Schiavo-Campo, Salvatore. 2003. "Financing and the Former Soviet Union. Washington, D.C. Aid Management Arrangements in Post-Con- ------. 2002b. Bosnia and Herzegovina--From flict Situations." World Bank CPR Working Aid Dependency to Fiscal Self-Reliance: A Paper No. 6. Washington, D.C. Public Expenditure and Institutional Review. Simmie, James, and Joze Dekleva (eds.). 1991. Yu- Washington, D.C. goslavia in Turmoil: after Self-Management. ------. 2002c. Bosnia and Herzegovina--From London and New York: Pinter. Aid Dependency to Fiscal Self-Reliance: A Sowards, Steven W. 1996. "Twenty-five Lectures Public Expenditure and Institutional Review. on Modern Balkan History." Washington, D.C. http://www.lib.msu.edu/sowards/balkan/ ------. 2000. The Road to Stability and Pros- UNDP (United Nations Development Program). perity in South-Eastern Europe: A Regional 2003. "International Assistance to BiH, Strategy Paper. Washington, D.C. 1996­2002." Sarajevo. 8 4 OED PUBLICATIONS Study Series 2003 Annual Review of Development Effectiveness: The Effectiveness of Bank Support for Policy Reform Agricultural Extension: The Kenya Experience Assisting Russia's Transition: An Unprecedented Challenge Bangladesh: Progress Through Partnership Bridging Troubled Waters: Assessing the World Bank Water Resources Strategy The CGIAR: An Independent Meta-Evaluation of the Consultative Group on International Agricultural Research Debt Relief for the Poorest: An OED Review of the HIPC Initiative Developing Towns and Cities: Lessons from Brazil and the Philippines The Drive to Partnership: Aid Coordination and the World Bank Financial Sector Reform: A Review of World Bank Assistance Financing the Global Benefits of Forests: The Bank's GEF Portfolio and the 1991 Forest Strategy and Its Implementation Fiscal Management in Adjustment Lending IDA's Partnership for Poverty Reduction Improving the Lives of the Poor Through Investment in Cities India: The Dairy Revolution Information Infrastructure: The World Bank Group's Experience Investing in Health: Development Effectiveness in the Health, Nutrition, and Population Sector Jordan: Supporting Stable Development in a Challenging Region Lesotho: Development in a Challenging Environment Mainstreaming Gender in World Bank Lending: An Update The Next Ascent: An Evaluation of the Aga Khan Rural Support Program, Pakistan Nongovernmental Organizations in World Bank­Supported Projects: A Review Poland Country Assistance Review: Partnership in a Transition Economy Poverty Reduction in the 1990s: An Evaluation of Strategy and Performance Power for Development: A Review of the World Bank Group's Experience with Private Participation in the Electricity Sector Promoting Environmental Sustainability in Development Reforming Agriculture: The World Bank Goes to Market Sharing Knowledge: Innovations and Remaining Challenges Social Funds: Assessing Effectiveness Uganda: Policy, Participation, People The World Bank's Experience with Post-Conflict Reconstruction The World Bank's Forest Strategy: Striking the Right Balance Zambia Country Assistance Review: Turning an Economy Around Evaluation Country Case Series Bosnia and Herzegovina: Post-Conflict Reconstruction Brazil: Forests in the Balance: Challenges of Conservation with Development Cameroon: Forest Sector Development in a Difficult Political Economy China: From Afforestation to Poverty Alleviation and Natural Forest Management Costa Rica: Forest Strategy and the Evolution of Land Use El Salvador: Post-Conflict Reconstruction India: Alleviating Poverty through Forest Development Indonesia: The Challenges of World Bank Involvement in Forests Uganda: Post-Conflict Reconstruction Proceedings Global Public Policies and Programs: Implications for Financing and Evaluation Lessons of Fiscal Adjustment Lesson from Urban Transport Evaluating the Gender Impact of World Bank Assistance Evaluation and Development: The Institutional Dimension (Transaction Publishers) Evaluation and Poverty Reduction Monitoring & Evaluation Capacity Development in Africa Public Sector Performance--The Critical Role of Evaluation Multilingual Editions Allègement de la dette pour les plus pauvres : Examen OED de l'initiative PPTE Appréciation de l'efficacité du développement : L'évaluation à la Banque mondiale et à la Société financière internationale Determinar la eficacia de las actividades de desarrollo : La evaluación en el Banco Mundial y la Corporación Financiera Internacional Côte d'Ivoire : Revue de l'aide de la Banque mondiale au pays Filipinas: Crisis y oportunidades Reconstruir a Economia de Moçambique : http://www.worldbank.org/oed TMxHSKIMBy359785zv,:&:*:=:) THE WORLD BANK ISBN 0-8213-5978-9